VwGH: Limits on balance sheet adjustments pursuant to Section 4(2)(2) of the Income Tax Act

The Administrative Court has clarified that, under procedural law, it is not permissible to adjust the first year — provided the limitation period has not yet expired — by means of surcharges or rebates.

If the balance sheet was not prepared in accordance with generally accepted accounting principles or the mandatory provisions of the Income Tax Act, it must be corrected for tax purposes. If the error can no longer be corrected with tax effect in the base year due to the expiry of the limitation period, the correction must be made by means of surcharges or rebates in the next possible assessment year for which the limitation period has not yet expired. If there is no other procedural basis for initiating proceedings for this correction year, Section 4(2)(2) of the Income Tax Act (EStG) provides for the correction in accordance with Section 293b of the Federal Tax Code (BAO).

In its judgment of 24 April 2025, Ra 2023/15/0112, the Administrative Court had to address the question of whether, in the course of a correction of a notice pursuant to Section 293b of the Federal Tax Code (BAO) in conjunction with Section 4(2)(2) of the Income Tax Act (EStG), errors in the first year not yet subject to the statute of limitations are themselves also subject to correction.

Facts of the case

During a tax audit of an Austrian bank, the tax office discovered that savings deposits had been recorded as liabilities in the annual accounts, even though there had been no activity on these accounts for more than 30 years. In the tax office’s view, these liabilities should have been written off, thereby increasing the profit, because after such a long period of time it could no longer be reasonably expected that the account holders would make a claim on them.

Consequently, for the year 2012 – the first year not yet subject to the statute of limitations – the tax office issued a correction notice pursuant to Section 293b of the Federal Tax Code (BAO) in conjunction with Section 4(2)(2) of the Income Tax Act (EStG), and included profit surcharges for the years 2003 to 2011, which were already subject to the statute of limitations. Furthermore, it also treated those savings balances as profit-increasing where the 30-year period had only expired in 2012.

The bank, on the other hand, took the view that a balance sheet adjustment or the application of surcharges and discounts pursuant to Section 4(2)(2) of the Income Tax Act is only permissible if the base year of the error is already time-barred; however, this did not apply to the year 2012.

Decision of the Administrative Court

The Administrative Court first emphasises that, under Section 4(2)(2) of the Income Tax Act, adjustments and reductions require that accounting errors can no longer be corrected for tax purposes solely because the limitation period has already expired. The failure to write off those savings balances for which the 30-year period had only expired in the 2012 tax assessment year – and thus in a year not yet subject to the limitation period – could therefore not be corrected by means of adjustments pursuant to Section 4(2)(2) of the Income Tax Act.

In the course of the adjustment of the years 2003 to 2011, which were already time-barred, pursuant to Section 293b of the Federal Tax Code (BAO) in 2012, inaccuracies relating to the year 2012 itself cannot be adjusted at the same time, particularly as Section 293b BAO provides only for a partial suspension of the finality of the decision.

By assessing profit surcharges for the year 2012, which had not yet become time-barred, in addition to the time-barred years in the present case, the tax office exceeded the scope of application of Section 4(2)(2) of the Income Tax Act. A correction of the year 2012 by way of a correction of the assessment notice pursuant to Section 293b of the Federal Tax Code was therefore inadmissible.