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Business expense deduction for unused loans

Business expense deduction for unused loans

Therefore, interest expenses related to the acquisition of investments in companies will generally not be (at least partially) deductible. However, paragraph 1 of Article 11 Clause 4 of the KStG states that this interest is deductible if the shares are part of the business assets of the company. However, in addition to this, the interest barrier and the prohibition on interest deduction in connection with acquisitions of intra-group investments and payments to low-tax corporate entities must also be taken into account.

In its ruling of 6 September 2023, No. Ro 2022/15/0029, the Administrative Court had to deal with the question of how to classify disbursements of unused loans in this context. A bank loan of €3 million was obtained from a local company for the planned acquisition of a shareholding stake. Ultimately, the acquisition was entirely self-financed and the bank picked up the closing costs of the loan. The Tax Office refused to deduct business expenses because the loan had not been used and therefore there was no interest within the meaning of Article 11 Paragraph 1 Clause 4 KStG.

According to VwGH, there can be no interest to that effect because the loan was not ultimately used. Self-financing of the investment acquisition also severed the causal relationship with tax-free investment income, which is why the general prohibition on deductions under Article 12 paragraph 2 KStG cannot be applied. As a result, these resolution costs are deductible as general business expenses.

Mag.Matthias Mitterlehner is Partner and Head of International Tax and Tax Consultant at ICON Wirtschaftstreuhand GmbH.