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Introduction of a Tax Loss Carry Back

22/10/20

Introduction of a Tax Loss Carry Back

For the first time, the Austrian authorities have enabled a tax loss carry-back (‘TLCB’) for losses from the assessment year 2020. However, this does not represent a change in general Austrian tax rules regarding the usage of losses, but one-off possibility due to Covid-19. Consequently, tax losses from 2020 can be used to offset profits generated in 2019 and 2018.

Recently, the tax authorities published an ordinance containing technical and formal details on the TLCB.

Maximum amount

The TLCB for 2020 is limited to a maximum amount of EUR 5m. In the event that EUR 5m threshold cannot be fully utilised in the tax assessment for 2019, the remaining losses can be considered in the tax assessment for 2018, but only up to max. EUR 2m. Any remaining tax losses 2020 can be carried forward.

Application for a TLCB

There are three options – which differ with regard to timing – for utilisation of the TLCB:

  • by applying for a TLCB in the context of the tax assessment for 2020
  • by applying for a tax loss reserve for 2019 in the context of the tax assessment for 2019
  • by applying for a reduction of corporate income tax prepayments for 2019 (in addition to the tax loss reserve)

a) Application within the tax assessment for 2020

Taxpayers can apply for the TLCB in the tax return for 2020. The TLCB will then be automatically considered by the tax administration in the course of the tax assessment for 2020, and the tax assessment notices for 2019 and 2018 will be adjusted accordingly. For this reason, the liquidity effect of the TLCB will occur later in this option.

b) Application within the tax assessment for 2019

A more rapid benefit from the TLCB can be achieved by applying for a tax loss reserve (‘Covid-19 reserve’) of up to EUR 5m in the tax assessment for 2019 provided that (i) there is a taxable profit in 2019 and (ii) taxable income is expected to be negative in 2020.

The Covid-19 reserve can be calculated as follows (observing the EUR 5m cap):

  • Without proof of a tax loss in 2020, the reserve amounts to max 30% of the taxable profit in 2019.
  • If the tax loss in 2020 can be evidenced, the reserve amounts to 60% of the taxable profit in 2019.

This option would result in a quicker liquidity effect, as it would already be possible to recognise (a part of) the TLCB in the tax assessment for 2019.

c) Reduction of CIT prepayments for 2019

If the preconditions for a Covid-19 reserve are fulfilled, it is possible to request an ex-post reduction of income tax prepayments made for 2019. The request must be supplemented by a calculation of the expected amount of income tax for 2019, taking the Covid-19 reserve into account.

Effects of the Covid-19 reserve on the tax return for 2020

In order to offset the Covid-19 reserve, the amount which has been deducted in the tax assessment for 2019 needs to be added in the tax assessment for 2020.

Additionally, following recognition of the Covid-19 reserve in the tax return for 2019, an application for the TLCB in the tax return 2020 could then be filed, making it possible to utilise the TLCB in 2018 and to adjust for this usage in 2019.

Non-calendar fiscal years

If the fiscal year differs from the calendar year, the taxpayer may choose whether to carry back a tax loss from 2019/2020 or 2020/2021 to the previous two years. Combining losses from two years is not possible.

Tax groups

As far as tax groups are concerned, in Austria only the group parent is entitled to apply for a TLCB and a tax loss reserve for the entire group income. The maximum TLCB is capped at EUR 5m multiplied by the number of group members plus the group parent.

Conclusion

By issuing the respective ordinance, the tax authority has largely provided clarity on the use of the TLCB. In practice, use of the TLCB may nevertheless lead to a need for coordination and unexpected pitfalls may be encountered.

Authors: Michael Wenzl, Lisa Hoflehner

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Copyright and Publisher: PwC Österreich GmbH Wirtschaftsprüfungsgesellschaft, Donau-City-Straße 7, 1220 Vienna, Austria

Editor: Eva Ebner, eva.ebner@pwc.com

The above information is intended to provide general guidance only. It should not be used as a substitute for professional advice or as the basis for decisions or actions without prior consultation with your advisors. While every care has been taken in the preparation of the publication, no liability is accepted for any statement, option, error or omission.

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