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AUSTRIAInternational Comparison of Insurance TaxationJanuary 2005
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AUSTRIAInternational Comparison of Insurance TaxationJanuary 2005
Austria – General InsuranceDefinitionDefinition of property and casualty insurance
company
AccountingA company to which insurance legislation
applies other than Life and health insurance.
TaxationNot defined by tax legislation.
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Commercial Accounts/Tax andRegulatory ReturnsBasis for the company's commercial accounts
Regulatory return
Accounting
General accounting principles according to
Austrian Commercial Code and Austrian Stock
Corporation Act as well as special accounting
principles in accordance with Insurance
Supervisory Act (VAG).
Domestic insurance companies have to report
in detail within five months after the end
of the financial year directly to the Insurance
Supervisory Authority (“Finanzmarktaufsicht”).
The insurance company has to file the following
documents: long-form report, approval of year-
end financial statements, certified completed
copy of the protocol of the meeting concerning
the release of managing board and supervisory
board, proof of the publication of the year-end
financial statement. Concerning the consolidated
financial statement, the insurance company has
to file the long-form report and the proof of the
publication of the year-end financial statement.
Taxation
Tax return has to be filed based on commercial
code as adjusted for tax purposes. Insurance
companies are subject to corporate income tax
with at least 20 % of the profit excluding
deduction of premium refunds (minimum tax)
from the life insurance business, from the health
insurance business, from the accident insurance
business with premium refund and from other
insurance divisions (calculated separately for
each division).
N/A
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AUSTRIAInternational Comparison of Insurance TaxationJanuary 2005
Austria – General Insurance (continued)
Tax return N/A Corporate Income Tax return: For corporate
income tax purposes a tax return is prepared
on an annual basis.
VAT return:
For VAT purposes tax returns are prepared
on an annual basis and preliminary tax returns
are prepared on a monthly basis. For Insurance
Tax and Fire Protection Tax purposes the insurer
has to file monthly and annual tax returns.
Technical Reserves/Equalisation Reserves
Unearned premium reserves (UPR)
Unpaid claims reported
Accounting
Calculated by pro-rating premiums on a
policy-by-policy basis; reliable apportionment
methods possible (1/24 method).
Generally calculated on case-by-case basis.
Under certain circumstances also lump-sum
method possible.
Taxation
Tax-deductible.
Beginning with assessment 2001, 30% of this
reserve is considered to be short-term and
therefore fully tax-deductible. 70% of the
reserves are considered to be long-term
reserves. Only 80% of long-term reserves are
tax-deductible. Transitional provisions apply.
Beginning with assessment 2005, 70% of this
reserve is considered to be short-term and
therefore fully tax-deductible. 30% of the
reserves are considered to be long-term reserves
are tax-deductible. Transitional provisions apply.
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AUSTRIAInternational Comparison of Insurance TaxationJanuary 2005
Austria – General Insurance (continued)
Claims incurred but not reported (IBNR) Estimated according to past years experience. Beginning with assessment 2001, 30% of this
reserve is considered to be short-term and
therefore fully tax-deductible. 70% of the
reserves are considered to be long-term
reserves. Only 80% of long-term reserves are
tax-deductible. Transitional provisions apply.
Beginning with assessment 2005, 70% of this
reserve is considered to be short-term and
therefore fully tax-deductible. 30% of the
reserves are considered to be long-term
reserves. Only 80% of long-term reserves are
tax-deductible. Transitional provisions apply.
Beginning with assessment 2001, 30% of this
reserve is considered to be short-term and
therefore fully tax-deductible. 70% of the
reserves are considered to be long-term
reserves. Only 80% of long-term reserves are
tax-deductible. Transitional provisions apply.
Beginning with assessment 2005, 70% of this
reserve is considered to be short-term and
therefore fully tax-deductible. 30% of the
reserves are considered to be long-term
reserves. Only 80% of long-term reserves are
tax-deductible. Transitional provisions apply.
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AUSTRIAInternational Comparison of Insurance TaxationJanuary 2005
Austria – General Insurance (continued)
Unexpired risks
General contingency/solvency reserves
Equalisation/catastrophe reserve
N/A
Minimum equity capitalisation requirements
for insurance companies. For the covering of
losses mutual insurance companies have to set
up a solvency reserve.
Equalisation reserves under a formula of the
Supervisory Authority (reflecting the standard
deviation of net losses for the 15 prior years)
have to be set up. Special equalisation reserve
for nuclear and pharmaceutical risks.
N/A
No tax implication
Beginning with assessment 2001, only 50 % of
the adjustments are tax-deductible, 50 % of the
provision of the year 2000 had to be spread over
three years (2001 – 2003).
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Expenses/RefundsAcquisition expenses
Loss adjustment expenses on unsettled claims
(Claims handling expenses)
Experience-rated refund
AccountingNo capitalisation of acquisition expenses,
immediate deductions.
Included in the claims reserves.
Deduction permitted for refund of premiums
due to low claim ratios.
TaxationTax deductible.
Tax deductible.
Tax-deductible.
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AUSTRIAInternational Comparison of Insurance TaxationJanuary 2005
Austria – General Insurance (continued)
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ReinsuranceReinsurance premiums and claims
AccountingReinsurance claims reduce the technical
reserves. Premiums paid to the reinsurer are
treated as expenses.
TaxationAllowed as per accounts.
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Mutual CompaniesMutual companies (All profits returned to
members)
AccountingProfit for the year has to be distributed to the
members. Special rules for mutual companies
in accordance with section 26 to section 73
Insurance Supervisory Act.
TaxationNo special rules.
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InvestmentsGains and losses on investments
Investment reserves
Investment income
AccountingGenerally accepted accounting principles.
Realised gains and realised and unrealised
losses are included in P&L statement.
Unrealised gains not recognised in financial
statements. Unrealised losses included
in P&L statement.
Included in P&L statement.
TaxationAllowed as per accounts. Investment income
derived from funds may be treated differently
as in P&L statement.
Allowed as per accounts. Under certain
conditions write off spread over seven years.
Included in taxable income. Dividends may
be exempt under affiliation privilege or possibility
of foreign tax credit. Investment income
derived from funds may be treated differently
as in P&L statement.
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AUSTRIAInternational Comparison of Insurance TaxationJanuary 2005
Austria – Other Tax FeaturesFurther corporate tax featuresLoss carryovers
Foreign branch income
Domestic branch income
Long-term accruals (special transition rules applicable)
Corporate tax rate
TaxationNo expiring date for loss carry forward, no loss carry back. Beginning with
assessment 2001, losses can only be set off against 75% of the annual
profit, i.e. 25% of the annual profit will always be taxed.
Foreign branch income either fully taxable with credit of foreign income tax
paid or exemption method depending on the relevant double tax treaty.
Unilateral relief may be possible in absence of a double tax treaty.
Calculated under ordinary rules based on branch accounts.
Beginning with assessment 2001, only 80% of the long-term accruals
are tax-deductible.
34% (from 2005 onwards 25%)
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Other tax featuresPremium taxes
Capital taxes
Captive insurance companies
TaxationIn general 4% insurance premium tax on all gross premium income.
In special cases the insurance premium tax rate varies from 11%
(life insurance with a duration up to ten years) to 1% (health insurance).
Fire protection tax at a rate of 8%.
Capital contributions by shareholders and share issues are subject to
1% capital transfer tax.
Status not clear. From a tax point of view captive insurance
companies are not considered to be insurance companies if they do not
carry out insurance business on arm’s length principle. Possible transfer
pricing problem.
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AUSTRIAInternational Comparison of Insurance TaxationJanuary 2005
Austria – Life InsuranceDefinitionDefinition of Life Assurance companies
AccountingA company to which insurance legislation
applies and which carries out Life Assurance.
TaxationNot defined by tax legislation.
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Commercial Accounts/Tax andRegulatory ReturnsBasis for the company’s commercial accounts
Regulatory return
Accounting
General accounting principles according to
Austrian Commercial Code and Austrian Stock
Corporation Act as well as special accounting
principles in accordance with section 80 to
section 86 Insurance Supervisory Act (VAG).
Domestic insurance companies have to report
within five months after the end of the financial
year directly to the Insurance Supervisory
Authority (“Finanzmarktaufsicht”). The insurance
company has to file the following documents:
long-form report, approval of year-end financial
statements, certified completed copy of the
protocol of the meeting concerning the release
of managing board and supervisory board, proof
of the publication of the year-end financial
statement. Concerning the consolidated financial
statement the insurance company has to file the
long-form report and the proof of the publication
of the year-end financial statement.
Taxation
Tax return has to be filed based on commercial
code as adjusted for tax purposes. Insurance
companies are subject to corporate income tax
with at least 20 % of the profit excluding
deduction of premium refunds (minimum tax)
from the Life Insurance business.
N/A
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AUSTRIAInternational Comparison of Insurance TaxationJanuary 2005
Austria – Life Insurance (continued)
Tax return N/A Corporate Income Tax return: For corporate
income tax purposes a separate tax return
is prepared on an annual basis.
VAT return: For VAT purposes separate tax
returns are prepared on an annual basis
and preliminary tax returns are prepared
on a monthly basis. For Insurance Tax purposes
the insurer has to file monthly and annual
tax returns.
General approach to calculation ofincomeAllocation of income between shareholders
and policyholders
Accounting
Profits returned to the policyholders are treated
as expenses.
Taxation
The provision for premium refunds and the
profits returned to the policyholders are under
special conditions as set out in section 17
Austrian Corporate Income Tax Act,
tax-deductible (20% minimum tax).
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Calculation of investment returnCalculation of investment income and capital
gains
AccountingTotal income approach. Investment income
and realised capital gains are included in
the P/L statement.
TaxationTaxable as per accounts. Investment income
derived from funds may be treated differently
as in P&L statement.
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Calculation of underwriting profitsor total incomeActuarial reserves
Acquisition expenses
Zillmerisation
AccountingCalculation of actuarial reserves regarding
Insurance Supervisory Act.
No capitalization of acquisition expenses.
(zillmerisation of accrual for policyholders
deposit)
TaxationBeginning with assessment 2001, only 80%
of long-term reserves are tax-deductible.
Tax deductible.
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AUSTRIAInternational Comparison of Insurance TaxationJanuary 2005
Austria – Life Insurance (continued)
Gains and losses on investments
Reserves against market losses on investments
Dividend income
Policyholder bonuses
Other special deductions
Generally accepted accounting principles.
Realised gains and realised and unrealised
losses are included in P&L statement
Unrealised losses must be included in P&L
statement. Valuation at lower of cost or market
value as a rule.
The gross amount is included in P&L statement.
Provisions for refund of premiums. Bonuses paid
to the policyholders as well as provision for
refund of premiums are treated as expenses.
N/A
Tax deductible. Investment income derived
from funds may be treated differently as
in P&L statement.
Tax deductible. Under certain conditions
write off spread over seven years.
Gross amounts included in taxable income.
Dividends may be exempt under affiliation
privilege or possibility of foreign tax credit.
Bonuses paid to the policyholders as well as
provisions for refund of premiums are tax-
deductible under special conditions as set out in
section 17 Austrian Corporate Income Tax Act.
N/A
ReinsuranceReinsurance
AccountingNo special rules in comparison with general
insurance. Reinsurance claims reduce the
technical reserves. Premiums paid to the
reinsurer are treated as expenses.
TaxationNo special rules. Premiums paid to the reinsurer
are tax-deductible.
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Mutual companies/StockcompaniesMutual companies
AccountingProfit for the year has to be distributed to the
members. Special rules for mutual companies
in accordance with section 26 to section 73
Insurance Supervisory Act.
TaxationNo special rules.
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AUSTRIAInternational Comparison of Insurance TaxationJanuary 2005
Austria – Other Tax FeaturesFurther corporate tax featuresLoss carryovers
Foreign branch income
Long-term accruals (special transition rules applicable)
Corporate tax rate
TaxationNo expiring date for loss carry forward, no loss carry back. Beginning with
assessment 2001, losses can only be set off against 75% of the annual
profit, i.e. 25% of the annual profit will always be taxed.
Foreign branch income either fully taxable with credit of foreign income tax
paid or exemption method depending on the relevant double tax treaty.
Unilateral relief may be possible in absence of a double tax treaty.
Beginning with assessment 2001, only 80% of the long-term accruals are
tax-deductible.
34% (from 2005 onwards 25%)
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Policyholder taxationDeductibility of premiums
Interest build-up
TaxationUp to a maximum of Euro 2,920 a year for the taxpayer, another EUR 2.920
for the spouse if he/she has no or very low income and another EUR 1.460
for families with 3 or more children, premiums for certain voluntary health,
life and accident insurance contract are recognised as a special expense
depending on taxable income (the deduction is phased out if the income
exceeds EUR 36.400, over Euro 50,900 no deduction possible). From the
calculated amount or the actual premium paid, whatever is lower, a quarter
is tax-deductible.
Not taxable.
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AUSTRIAInternational Comparison of Insurance TaxationJanuary 2005
Austria – Other Tax Features (continued)
Proceeds during lifetime
Proceeds on death
Generally not taxable. Taxation does apply if proceeds are paid as annuity
and the payments exceeds the sum insured or if proceeds are paid under
certain short term (duration of less than 10 years) single premium life
insurance contracts and the proceeds received exceeds the premium paid.
Not taxable.
Other tax featuresPremium taxes
Capital taxes
Captive Insurance companies
TaxationInsurance tax of 11% for life insurance with a single premium with
a duration up to ten years and insurance tax of 4% in all other cases
of life insurance.
Capital contributions by shareholders and share issues are subject to
1% capital transfer tax.
Status not clear. From a tax point of view captive insurance companies
are not considered to be insurance companies if they do not
carry out insurance business on arm’s length principle. Possible
transfer pricing problem.
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AUSTRIAInternational Comparison of Insurance TaxationJanuary 2005
Austrian Tax Reform 2005 – General informationReduced corporate income tax rate of 25 %
New system of group taxation
The corporate income tax rate will be reduced from currently 34% to 25%
from 2005 onwards.
An attractive system of group taxation will be implemented beginning with
assessment 2005. If two or more companies exercise the option to form
a tax group, the taxable results of the domestic “group members” will be
attributed to their respective parent company and will be taxed on the
level of the “group parent”. Tax losses of group companies can, thus, be
consolidated with taxable profits of other group companies. Profits are
only attributed for tax purposes; there is no requirement for a statutory
profit/loss takeover agreement.
The following conditions have to be met in order to qualify as a tax group:
• a qualifying participation of more than 50 % (directly or indirectly e.g.
via a partnership) and
• a written application to form a tax group which has to be filed with
the competent tax office and which has to include an agreement
on the allocation of tax costs.
In the case of a domestic tax group, the attribution of income is effected
at 100 %, even in the case of existing minority shareholders (Only in the
case of a tax group with more than one parent company, is a proportional
profit/loss allocation applied). In order neither to advantage nor
disadvantage minority shareholders, an appropriate system of tax
allocations between the group companies has to be established.
Foreign losses
A tax group can also include foreign group members. Losses of foreign
subsidiaries within a tax group can be used against Austrian profits
(proportionally to the extent of direct partnership held by group members).
For this purpose the foreign losses have to be adapted so as to comply
with Austrian tax provisions. Profits realized by foreign subsidiaries will not
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AUSTRIAInternational Comparison of Insurance TaxationJanuary 2005
Austrian Tax Reform 2005 – General information (continued)
Deduction of interest for the acquisition of participations
Goodwill depreciation after the acquisition of a domestic participation
Unpaid claims reported and Claims incurred but not reported (IBNR)
become subject to taxation in Austria. To the extent that foreign losses are
used abroad at a later point in time (i.e. offset against foreign taxable
profits) or if a foreign subsidiary leaves the group (except for liquidation or
insolvency), the tax benefit obtained from offsetting these losses against
Austrian profits has to be refunded.
Under current tax law, interest for the acquisition of participations can
generally not be deducted. From 2005 onwards interest on loans taken out
to acquire domestic or foreign participations will generally be tax
deductible (as long as the arm’s length principle is observed). Interest will
be deductible regardless of whether the involved companies are part of a
tax group or not.
Upon acquisition of a participation in an Austrian company after December
31, 2004 goodwill (including hidden reserves in depreciable assets) can be
deducted tax effectively over a period of 15 years, if the following
conditions are met:
• the acquired company must be engaged in active business;
• it must be resident for tax purposes in Austria;
• it must be a member in a tax group;
• acquisitions of participations from a related party are excluded.
The basis for goodwill depreciation is restricted to 50 % of the total
acquisition cost.
Beginning with assessment 2005, 70 % of these reserves are considered
to be short-term (detailed information see Austria – General Insurance 3
Technical Reserves/Equalisation Reserves)
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AUSTRIAInternational Comparison of Insurance TaxationJanuary 2005
Contact informationAudit purposesGuenter Wiltschek +43 1 50188 - 2100
Franz Gogg +43 1 50188 - 1300
Liane Hirner* +43 1 50188 - 1325
Tax purposesFriedrich Roedler +43 1 50188 - 3600
Dieter Habersack* +43 1 50188 - 3626
* Primary contacts
e-mail: [email protected]
address: Erdbergstrasse 200
1030 Wien
>
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