Austria: Tax Treatment Of Liechtenstein Foundations
In a recent decision the Austrian Supreme Administrative Court ruled on the tax treatment of Liechtenstein foundations for the second time within one month.
In the case at hand the competent tax authority attributed investment income generated by a Liechtenstein foundation to the Austrian resident widow of the founder. According to the bylaws of the foundation the widow was the primary beneficiary. A mandate agreement (Mandatsvertrag) was not put in place. Therefore, the board of directors was not legally bound to the instructions of the beneficiaries. However, the widow took part in meetings of the board of directors, initialled an accounting document and had the right to amend the foundation (Änderungsrecht). Since the bylaws were not precisely worded regarding the powers of the board of directors and since the foundation was situated in a tax haven, the tax authority qualified the foundation as tax-transparent.
In its recent decision (25 March 2015, 2012/13/0033) the Austrian Supreme Administrative Court rejected the qualification of the tax authority and regarded the foundation as the owner of the investment income. It was held that the foundation’s income is, in principle, attributable to the foundation only, unless the founder or beneficiaries may influence the decision-making of the foundation to such a large extent that the assets of the foundation have to be regarded as held in trust. This would particularly be the case if a mandate agreement existed (see also the judgment of 25 February 2015, 2011/13/0003; reported in our Tax Newsletter 1/2015). The mere fact that the beneficiary participated in meetings of the board of directors and initialled an accounting document does not entitle the tax authority to assume that such mandate agreement was concluded.
