Austria: Prohibition on deduction of incidental acquisition costs for private investors

Capital gains realised on capital assets by an Austrian resident are generally subject to a withholding tax at a special rate of 27.5 percent. This tax is a final tax and applies to capital assets which have been acquired after 31 December 2010 and before in certain cases. Non-residents are also subject to this tax on capital gains derived from certain Austrian investment assets.

The respective capital gain is calculated by deducting the acquisition costs from the disposal proceeds. However, according to sec. 27a of the Austrian Income Tax Act (ITA) private investors cannot deduct incidental acquisition costs (e.g. commission, trading fees, stock exchange fees) in case the special rate of 27.5 percent is applicable. In contrast, if the capital investments are held as business assets, sec. 27a of the ITA allows a deduction of such expenses. In a case as of June 13, 2017 the Austrian Constitutional Court (VfGH) had to judge the legitimacy of this different treatment of private and business assets (G 336/2016-11).

The VfGH stated that, in order to avoid a circumvention of the general prohibition on the deduction of income-related expenses, a prohibition on the deduction of incidental acquisition costs is also necessary. Otherwise, the taxpayer would be tempted to avoid the prohibition by shifting costs to acquisition related expenses (e.g. agreement on higher transfer fees vs. fixed custody fees). Therefore, the economic equivalency of the expenses incurred on sales and acquisitions justifies the prohibition on the deduction of income-related expenses by a provision which excludes the recognition of such expenses as incidental acquisition costs.

As a result, the VfGH did not see an unconstitutional discrimination in the controversial provision. Therefore, the deduction of incidental acquisition costs for private investors is not possible in case the special rate of 27.5 percent is applicable – which is generally the case. The full difference between the disposal proceeds and the acquisition price remains taxable. Unfortunately, this decision preserves the unfavourable status quo for private investors. In line with this decision banks have not deducted any additional costs (e.g. incidental acquisition costs) due to the presumption of private capital investments.

In practice, this VfGH decision means that the holding of capital investments as business assets may well be advantageous, in case there is a choice in this respect.