Group head - Corporations resident in Austria . But also EU-Corporations with limited tax liability which are located within a member state of the European Economic Area and having an Austrian branch, registered in the Commercial Register (Firmenbuch), and the associated company is counted to the branch office.

Multi-parent groups can pool their participations if one parent company holds at least 40% and the other at least 15% of the equity.

Group members - normally resident corporations, but also foreign corporations if they are financial associated (directly or indirectly) with a resident group head or a group member. Foreign results have to be calculated after Austrian tax law.

Group access: Necessary equity participation at the beginning of the financial year and group contract before the end of the financial year. No obligation but right of election - through group contract. The participation has to exist during the whole financial year.

Effectiveness of group taxation:

Balancing out of all positive + negative results of resident as well as foreign group members. In case of a loss the group head carries the minimum corporate tax of all group members.

Losses before joining the group and outside the group (change of legal form) of a group member are just deductible with profits of this very group member (however without the 75% limitation, thus with 100%!!!)

The results of the domestic group members are counted with 100%, even if the group head holds only 51% (here the 75% carry loss forward limitation is valid for the group head). Multi-parent groups have to count the results in relation with their participation to the equity of the group members.

Foreign losses have to be taxed supplementary within the group head in the year in which this losses are realisable.

It is possible to write-off the goodwill of acquired domestic operating companies over 15 years.

If the group is formed later, write-offs of former years are not deductible.

Withdrawal: Within 3 years => rescission of all tax effects, as if the group had never existed.

After 3 years: eventual carry loss forwards, which would have been collected by the group member without group, stay at the group head (tax shifting rule in the group contract is important from a company law view). Acquired foreign losses have to be taxed supplementary at the date of withdrawal.

Advantages: Contemporary realisation of losses, realisation of sustainable losses of a group company, inland realisation of foreign losses, goodwill amortisation.

2. Other reforms 2005 (volume of tax relief around € 2,5 billions)

2.1. Corporate tax rate from 34% to 25% from 1.1. 2005: => max. linear tax rate = 43,75%

Strategy: Contribution of the business (if it is allowed from employment law, e.g. not for doctors) into a corporation or for businessmen and sole trader preferred taxation of the profits which are not distributed.

Application of reduction for corporate tax prepayments (on the basis of a precise accounting for planning and control).

2.2. Interest deduction for debt financial acquisitions: For this reason up to now necessary change of legal form becomes obsolete.

2.3. Securities covering for severance payment obligations: from 1.1.2005 the securities portfolio can be reduced to 20% of the fictive redundancy payments on the basis of the severance payments accruals at the end of the financial year 2003.

2.4. Consideration of foreign losses: Not considerated losses abroad (calculated after Austrian law) could be used for the calculation of the income in that year. They have to be added to the Austrian income, if they are balanced against foreign profits later on.

2.5. Taxation in case of moving away: In case of the transfer of assets or operations resp. operational facilities or participations to a country outside the EU hidden reserves are realised. In the case of a transfer into another EU-country (also EEA) the emerging tax liability is not levied until the assets are really sold.

2.6. Amendment of the regulation of building privilege at termination of a business: No realisation of hidden reserves in parts of the building, which were used as the main residence until the ending of the business.

- renting out is no reason to deprive the privilege

- if the building is rented out the basis for the depreciation has to be cut by the (untaxed) hidden reserves;

- the tax-payer has the possibility to opt for the new legal situation for operations closed before 31.12.2004.

2.7. Schooling and studying costs as benefited education and training costs or reeducation costs:

Also high school, University studies, studies at a "Fachhochschule" - but just if there is a correlation to the activities of the tax-payer or in the case of a comprehensive reeducation (retrospective to the tax return of 2003).

2.8. Prohibition of transfering of hidden reserves (§ 12 income tax act) for corporations from 1.1.2005

Through dotation of a § 12-reserve emerges besides an interest gain also a 9% "Steuersatzdifferenzgewinn"!

For natural persons the possibility of transfers of hidden reserves exists furthermore (under consideration of the prerequisites).

2.9. Phase-out of "Investitionszuwachsprämie"

2.10. Appropriate value limitation for cars from € 34.000,00 to € 40.000,00 (for purchases from 1.1.2005 on)

2.11. The limitation of payments in kind rises up to € 600 (€ 510 so far) from 2005 on

2.12. Church membership fees are deductible till € 100,00 (€ 75,00 so far) from 2005.

2.13. Lottery prizes become tax free (retrospective)

2.14. Tax exemption for lunch cupons: € 4,40/day for restaurants; € 1,10/day for food

2.15. Increasing of commuter lump-sum (from 20 km)

3. New income tax rate from 1.1.2005 (expected tax relief of 1 Bill. Euro)

Annual income tax:

The tax rate for income higher than 51.000 Euro is 50 %.

With an income over 10 000 Euro the income tax has to be calculated as followed:

(I = Income)

Examples: