VwGH: Merger pursuant to Art. IV UmgrStG and retroactive tax income allocation

A recent ruling by the Administrative Court is of particular importance for mergers pursuant to Section IV of the Reorganisation Tax Act (UmgrStG) with a retroactive merger date. According to this ruling, taxable income in the so-called retroactive period is attributable exclusively to those merger partners who transfer beneficiary assets within the meaning of Section IV of the Reorganisation Tax Act. Partners who merely make a cash contribution are not affected by this. This can have a significant impact on the financial position of the shareholders.

The Administrative Court of Appeal recently had to rule on an ordinary appeal by the tax administration, whereby it was initially questionable whether, in the context of an atypical silent partnership (co-partnership), a preferential allocation of tax losses to the silent partner, which deviated from the participation quota, should be recognised for tax purposes. In the case in question, the loss allocation amounted to almost 200% of the contribution and was also retroactive within the framework of a merger pursuant to Art. IV of the Reorganisation Tax Act (UmgrStG) from the merger date.

The supreme court’s examination of this issue has far-reaching tax implications that clearly go beyond the original question.

VwGH 07.10.2025, Ro 2024/15/0002

Statements by the Administrative Court:

Income allocation in joint ventures

If a person is a co-partner, the tax law question of who the income should be attributed to must be decided primarily on the basis of economic considerations.¹ The decisive factor is whether the person to whom the income is attributed has control over the source of income, i.e. whether they can dispose of it economically and thus determine how it is used.²

However, from a tax perspective, the income of a partnership cannot be distributed arbitrarily among the persons involved. Rather, the distribution must correspond to the shareholders’ contribution to the achievement of the company’s purpose. As the Administrative Court of Appeal has already ruled³, there must therefore be a valid economic reason for allocating profits in a manner that deviates from the ownership structure, even in the case of contractual partners who are not related. Such a reason does not exist in the case of a (from an economic point of view retroactive) participation in expenses and losses from previous years.

Income allocation in the case of a merger pursuant to Section IV of the Austrian Reorganisation Tax Act (UmgrStG) during the retroactive period

In its ruling of 20 January 2016, 2012/13/0013, with a retroactively agreed merger of an operating limited liability company and natural persons into an atypical silent partnership based on Art. IV UmgrStG, in which the natural persons contributed shares from their private assets to the company as silent partners. The issue in dispute was whether the retroactive fiction for restructuring tax purposes also applies to the valuation of these shares, which do not constitute “preferential” assets within the meaning of Section 23 (2) of the UmgrStG.

In this regard, the Administrative Court stated that income tax law is generally opposed to retroactive effect and that, insofar as the Reorganisation Tax Act contains retroactive effect provisions, these are to be interpreted narrowly as exceptions. For the contribution of the shares, which are not preferential assets within the meaning of Art. IV UmgrStG, the partial value at the time of signing the merger agreement and not the partial value on the earlier merger date is therefore to be applied. The impairment of the non-preferential assets that occurred during the agreed retroactive period was therefore not to be taken into account in the partnership’s profits.

The Administrative Court further states that it does not follow from the law that persons who contribute non-preferential assets within the meaning of Section 23 (2) of the UmgrStG (e.g. cash contributions) can participate in the joint income of the partnership for periods prior to the conclusion of the merger agreement. The merger cannot therefore result in any attribution with regard to income generated prior to the conclusion of the merger agreement (in the retroactive period) for persons who contribute non-preferential assets. In the case of a retroactive merger, the income generated during the retroactive period at the level of the partnership can therefore only be attributed to those persons who have contributed beneficiary assets within the meaning of Section 23 (2) UmgrStG:

“Anyone who participates in a retroactive merger within the meaning of Art. IV UmgrStG with non-preferential assets (in particular money) cannot participate in income generated by the partnership (or by the persons contributing preferential assets) during the retroactive period, but remains (sole) imputed subject of the income generated by him during this period from the non-preferential assets (if applicable).”

This finding therefore makes it necessary to initiate detailed considerations and preparatory work for the mergers planned for the merger date of 31 December 2025 in cases of mere cash contributions by some merger partners.

Our experts will be happy to assist you in this regard.