BFG on hidden profit distribution

Feb 24, 2021 Benn-Ibler Rechtsanwälte

In legal dispute 1, according to the prosecuting authority, a "loan was granted at the expense of the corporation without any customary content (no contract formulated in detail in writing, no agreement on interest, no collateral, handover in a car park, etc.). In case 2, according to the prosecuting authority, a purchase contract was assessed as not being of an arm's length nature. In this purchase contract, the acquisition of a property by the managing director and indirect shareholder was recorded by the appellant party (group member). In addition, there is said to have been a non-interest-bearing clearing account of the managing director. Due to the close relationship, these transactions are subjected to an arm's length comparison.

The legal basis for the determination of income is Sec. 8 (2) Income Tax Act 1988 (EStG 1988). Accordingly, it is irrelevant whether the income is distributed, withdrawn or otherwise used by way of open or hidden distributions.

According to the case law of the Austrian Supreme Administrative Court (Verwaltungsgerichtshof, VwGH), all payments made by a corporation to shareholders (partners or a person with a position similar to that of a partner or a person close to a shareholder) outside of the distribution of profits under company law (arm's length comparison), which unjustifiably reduce the income of the corporation and have their root in the shareholding, fall under a hidden distribution.

A hidden distribution also exists if a corporation would not grant an advantage to outsiders under the same favorable conditions (arm's length comparison). In addition to the objective elements of the offence (enrichment of the shareholder or a person close to him at the expense of the corporation), the prerequisites also consist of a subjective element of the offence (decision to grant an advantage).

In the first legal dispute, there had not been a hidden distribution because there was "no usual formulated loan agreement" and the money had been handed over in cash. In the second legal dispute, there were two hidden distributions, since a completely excessive purchase price (not customary for third parties) was paid and, with regard to the clearing account, because of the interest that was not charged and the free provision of a loan without collateral.

BFG GZ. RV/6100513/2018, BFG GZ. RV/2100095/2020