In a recent decision, the Austrian Administrative Supreme Court (VwGH) clarified that Liechtenstein foundations may also distribute their capital to beneficiaries on a tax-free basis. In doing so, the Court confirmed that foreign foundations must not be discriminated against in comparison with domestic private foundations.
Specifically, this means that a Liechtenstein foundation must also maintain an ongoing tax evidence account (“Evidenzkonto”), which, as a first step, correctly records the initial contribution values of the foundation. Subsequently, this evidence account must be continuously updated so that a distinction can be made between capital and taxable profits. According to the VwGH, the relevant value pursuant to the Austrian Income Tax Act must be taken as the basis.
The decision is of considerable importance for Liechtenstein foundations with Austrian beneficiaries.
Although, in the specific case at hand, the VwGH did not recognize the tax exemption of the distributions to the Austrian beneficiary, the decision is nevertheless of considerable importance for Liechtenstein foundations with Austrian beneficiaries.
If the evidence account is properly maintained in accordance with Austrian regulations, it is also possible for Liechtenstein foundations to distribute the capital of the foundation’s assets to Austria on a tax-free basis. It should be noted that, in tax proceedings, the burden of proof does not lie with the tax authority, but with the person subject to taxation in Austria.
In practice, it is therefore recommended that Liechtenstein foundations with Austrian beneficiaries maintain an evidence account from the outset. In order for this account to comply with the relevant Austrian legal provisions, the accounting department—usually based in Liechtenstein—should work closely with an Austrian tax advisor in this respect.
