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Corona Virus: Impacts on Taxation, Financial Statements, Ability to distribute dividends. What you have to watch out for!
The Corona virus has dramatic consequences for most Austrian enterprises. But could it even have an impact on their 2019 financial statements (provided they were not resolved and filed yet)? Will it be possible to use the crises negative effects for claiming deductions in the 2019 tax return? Will it reduce the capacity of an entity that was profitable 2019 to distribute dividends?
We limit this short overview on the most common forms of Austrian entities, i.e. GmbHs, AGs and GmbH&Co KGs.
Do the expected consequences of the Corona crises have to be reflected in the 2019 financial statements?
Section 201 of the Austrian Commercial Code provides the following:
Information obtained by the company’s officers during the period beginning with the financial year’s closing date until the actual date of approving the financial statements, has to be reflected in the financial statements, provided that it has a relevant effect on the valuation of the company’s assets or liabilities.
If the new information reveals facts that had already happened before the end of the financial year, such information has a direct impact on the valuation of specific assets or liabilities in the financial statements and may lead to impairments or write offs.
In case relevant new information based on events that happened after financial year end, such new information has to be reported in the Notes to the financial statements. Therefore, in most cases the effects of the Corona Crises will rather not lead to impairments but rather to a report obligations in the Notes, but this has to be analyzed on a case by case basis.
From a tax perspective an impairment for the financial year 2019 would certainly have the positive side effect that it could reduce the company’s tax burden to be reported for 2019.
Does the Corona Virus crises restrict a company’s ability to distribute dividends?
In case of development with such a serious economic impact as the Corona Virus crises, the management of an Austrina company has to carefully assess whether on the basis of the new knowledge obtained since year end a dividend distribution would still be covered by earnings and free earnings reserves. This might lead to difficult questions and conflicts of interest with shareholders. In some doubtful cases it might be advisable for the management to retain legal advice.
Did the Austria tax administration grant any immediate relief for the tax payers?
For the time being the tax administration has granted the possibility of a reduction of the quarterly CIT prepayments. We can assist you with filing a request for such reduction.