Up Again Austria: Government Relief and Tax

Restructuring

1. Legislative changes: are there any additional processes or support which have been introduced as a response to the pandemic which I may not have considered previously?

Support is provided for the financing of business capital (e.g. goods purchases, personnel costs, insurance, vehicle costs, leasing rates, rent) to healthy companies that, due to the COVID-19 pandemic, have no or insufficient liquidity to finance their current operations or whose sales and earnings development is impaired by order cancellations or market changes. In addition, credit deferrals of existing financing can be included in the guarantees.

Due to economic distress or liquidity shortages caused by the COVID-19 crisis, businesses can apply for a deferral or an instalment payment of taxes. They can also apply for the deferral interest to be reduced to zero.

2. Is there anything else I should look out for?

No.

Tax

3. What is the position with respect to the applicability of emergency tax measures , including

a. what they are and apply to;

b. when they are expected to be phased out on or following a return to business; and

c. whether any transitional periods are likely to apply.

The following tax relief measures have been granted, if taxpayers are affected by a loss of income due to COVID-19:

  • reduction in advance payments of income or corporation tax for 2020 (apply for until 31 October 2020);
  • deferment of the tax payment date or payment in instalments until 30 September 2020 (with a focus on income and corporate taxes);
  • refraining from setting deferral interest (with a focus on income and corporate taxes); and
  • reduction or not setting a late-payment penalty (with a focus on income and corporate taxes).

The amendments to the Law on Stamp Duties create a broad exemption from stamp duties and federal administrative charges for all writings and official acts and documents in connection with the COVID-19 crisis, so that there are no additional charges for applying for support.

The run of important deadlines for tax appeals and appeals against financial criminal proceedings not expired before 16 March 2020 was interrupted until 1 May 2020.

The liquidity needs of companies can be covered by direct subsidies to cover fixed costs from the Republic of Austria (apply for from 20 May 2020). The fixed cost subsidy does not have to be refunded, and the amount is staged and depends on the loss of turnover of the company.

To support commercial and industrial SMEs affected by the COVID-19 crisis (as well as for freelancers), funding is provided for the financing of working capital (e.g. purchases of goods, personnel costs) in the form of three variants of bridging guarantees.

4. Are there specific steps that businesses should take to prepare for these tax measures being phased out – for example new timing of

a. payment obligations (and therefore likely pressure on cash flow); and/or

b. filing of returns?

The deadline for annual tax returns for VAT, income tax and corporation tax is extended generally to 31 August 2020.

For all annual financial statements that must be submitted to the Commercial Register Court after 21 March 2020, the deadline will be extended by 40 days (currently, subject to a possible extension by decree).

5. Should the impact of emergency tax measures be reconsidered by businesses – e.g. are there certain legal transactions (such as sales or reorganisations) that parties should preferably postpone or accelerate?

In connection with subsidies/grants, damage minimisation obligations and dividend distributions restrictions may exist, and the preservation of jobs in Austria must be taken into account.

6. Are there any additional measures proposed, in particular any that are targeted at particular sectors (e.g. aviation)?

Separate aid packages for tourism and gastronomy (EUR500 million euros) will be decided in the next few weeks.

7. Are there any sectors or interest groups that are now putting forward, or may in the near future request, special tax measures?

See question three above. The aid package mentioned in question six above includes a reduction of the tax on non-alcoholic beverages in restaurants to 10% until the end of 2020, an abolition of the sparkling wine tax, and further reductions and advantages.

8. Which taxes might be increased to address the financial burden caused by the crisis, for example,

a. are there political commitments or policy trends that might indicate the likely focus of any tax increase in the future (e.g. to maintain low corporation tax, but to increases taxes on personal wealth)

b. measures to broaden the tax base, such as digital services taxation and a pre-emptive response to the OECD/ G20 Inclusive Framework on BEPS (“BEPS 2.0”)

As far as we’re aware, the planned tax reform for 2021 is to be implemented. A reduction of wage and income tax rates is still planned. Details of the "relief for the economy" have not yet been specified. Measures can be expected, such as a reduction in corporation tax from 25% to 21% over the course of several years.

The opposition is warning against tax increases or new taxes to finance the currently planned EUR38 billion in COVID-19 aid for the domestic economy. It is not yet clear how this additional expenditure will be paid.

The budget debate in Parliament, which could provide initial answers to these questions, was scheduled to be held in May.

9. Are there other actions that ought to be considered by businesses in your country e.g.

a. revisit past tax filings to claim carry back of losses;

b. revise or update preliminary tax assessments;

c. claim bad debt relief for VAT output tax

A loss carry-forward is not possible according to Austrian tax law (and is also not planned to be introduced as a result of COVID-19).

Preliminary tax assessments can be revised and updated, and businesses may apply for reduction of income and corporate tax prepayments. The same applies for bad debt reliefs for VAT output tax.

Finance

10. What do you need to consider in terms of your funding requirements for returning to business and are there any return to business financial assistance packages being made available by government?

There are no specific return-to-business financial assistance packages being made available by the Austrian government. But to protect Austrian companies and their employees against the economic impact of COVID-19, the government made available a EUR38 billion aid package for the national economy, which is divided in the following sub-funds and measures.

The package consists of a EUR4 billion emergency aid package, which was rolled out to finance short-time work (Kurzarbeit) and to support small and medium-sized enterprises (SMEs) in particular. A further EUR9 billion in guarantees and liabilities are to be provided to secure loans.

EUR15 billion will be invested in an emergency fund in the form of:

  • direct grants, repayable advances and guarantees;
  • state guarantees for loans subject to safeguards for banks to channel state aid to the real economy; and
  • subsidised public loans to companies, with favourable interest rates.

The newly created COVID-19 Financing Agency of the Federal Government (COFAG) will manage the Fund with the Austria Wirtschaftsservice GmbH (AWS), the Austrian Tourism and Hotel Agency (ÖHT), and the Austrian Control Bank (ÖKB). The initial and single point of contact will be the respective house bank of the respective enterprise. A further EUR10 billion is earmarked for tax deferrals.

The main goal of this assistance package is to provide businesses with sufficient liquidity to help them throughout the crisis and to prevent mass unemployment in Austria.

There are also regional subsidies with the aim of strengthening the economy and cushioning the serious financial consequences of the COVID-19 crisis.

Coronavirus-related losses in sales, for example due to disrupted delivery channels or production problems or the simple absence of customers, may have a direct impact on most financial covenants. It is irrelevant whether only the leverage is measured or whether other financial ratios such as equity ratio, debt service or interest coverage also apply. In particular, it must be examined whether and to what extent:

  • existing buffers are adequate to sufficiently cushion losses and COVID-19 effects;
  • specific adjustments to EBITDA can be made, for example due to extraordinary expenses; or
  • the effect of COVID-19 effect will continue in the figures for the following quarters due to the rolling consideration of the last twelve months

There is no general rule for not applying or suspending contractual arrangements in the event of pandemics or force majeure. To avoid serious consequences of a breach of financial covenants, borrowers should therefore focus on transparency well in advance of the occurrence of the breach, develop a communication strategy, and apply for the lender to waive the right of termination (waiver) – and, in the event of more far-reaching consequences, to adjust the loan agreement.

11. How will funding a return to business, including taking on additional indebtedness, impact on your financial or other covenants?

Before taking on additional indebtedness, existing facility agreements should be reviewed. This is because facility agreements, in particular international facility agreements (e.g. based on the LMA standard), often stipulate that the borrower may not conclude any further financing agreements, or may only do so with the consent of the lender.

Further, facility agreements normally contain material adverse change clauses entitling the lender to terminate and accelerate the loan or to refuse further drawdowns, if the business activities, the net assets, financial position and results of operations of the borrower have worsened (or are expected to worsen significantly in the near future).

Facility agreements also regularly contain clauses that oblige borrowers to maintain certain financial ratios (debt service coverage ratio or net debt ratio). These financial ratios represent a classic early warning system for the financing credit institution about the economic situation of the company.

So-called cross-defaults clauses are also frequently included in Austrian facility agreements, and contain an option for the lender to terminate the contract if the borrower is not able to fulfil its financial obligations to other creditors.

Unless the existing facility agreement already provides for a lender's right of termination in the event of a deterioration of the borrower's financial situation, general terms and conditions of Austrian banks (if applicable) usually entitle the lender to terminate the facility agreement if a deterioration or threat to the financial situation of the borrower or a co-obligor occurs and the fulfilment of obligations to the lender is thereby jeopardised.

Therefore, if the proliferation of COVID-19 or the measures taken to contain it lead to such effects on the financial situation of the borrower or another obligor and either the finance agreement or the terms and conditions provide for such a reason for termination, the lender could have a right to terminate the respective contract.

12. Are there any remedies such as equity cure or margin ratchets that you should be checking on to provide liquidity to prevent a default or improve their financial position?

In some cases, alternative remedies may be available to borrowers, in particular if shareholders or group companies have sufficient funds available that could be used to improve the equity position of the respective borrower or that lead to a favourable calculation of financial covenants. It may make sense to provide additional equity or shareholder loans (if possible) to a borrower to avoid negative consequences under the respective loan documentation.

13. What practicalities do you need to consider in relation to audit requirements?

In the course of the extensive COVID-19 legislative packages, the deadlines for the preparation and publication of annual and consolidated financial statements, and for holding shareholders' meetings, have also been loosened.

The general deadline for the preparation of accounting documents of a corporation according to Art 222 para. 1 Austrian Business Code (Unternehmensgesetzbuch, or UGB) has been extended from five months to a maximum of nine months (Art 3a para. 1 COVID-19-GesG).

The two-month period of Art 96 para. 1 of the Austrian Stock Corporation Act (AktG) for stock corporations to have their annual financial statements audited and approved by the Supervisory Board continues to follow the preparation date pursuant to Art 222 para. 1 UGB.

The Supervisory Board may, therefore, adopt the annual financial statements by at the latest eleven months after the balance sheet date of the annual financial statements to be adopted. An extension from eight to twelve months was approved for ordinary general meetings in accordance with Art 104 para. 1 AktG (Art 2 para. 1 COVID-19-GesG).

The period for resolutions of the shareholders of a company with limited liability (Gesellschaft mit beschränkter Haftung or GmbH) according to Art 35 para. 1 no. 1 Limited Liability Companies Act (GmbHG) with regard to the annual financial statement was extended from eight to twelve months (Art 2 para. 3 COVID-19-GesG).

It is recommended that these deadlines should also be agreed regarding existing facility agreements, as the deadlines for the delivery of the respective financial statements to the creditors may differ and a delayed transmission may lead to an event of default.

Also take into account that, under certain facility agreements, if the auditors qualify their report with a “going concern” qualification, this could constitute a covenant violation of the financial statement delivery covenant that may constitute an event of default.

14. What is the process if I need any amendments made or waivers given under my loan documentation (including in respect of financial covenants)?

In most cases, there is no specific process if amendments or waivers under the loan documentation are necessary, other than the borrower requesting such waiver of amendment by notice to the financing banks (or the agent).

Depending on the financing documentation, a waiver will require (at least) majority lender consent. Additionally, a waiver fee may apply. So it is advisable for borrowers to contact the lender(s) at an early stage and keep lines of communication open at all times.

15. Dealing with creditors, including amendments and waivers – Bonds

a. If I can’t comply with the terms of my bond covenants who do I need to notify?

If the non-fulfilment of the bond terms and conditions does not trigger an ad hoc reporting obligation (e.g. because the non-fulfilment is unlikely to have a material effect on the price or because the bond is not traded on a regulated market), the terms and conditions of the bond itself usually contain clauses on the reporting obligations of issuers.

However, Art 121 para. 1of the Austrian Stock Exchange Act (“BörseG”) stipulates the obligation of equal treatment for issuers vis-à-vis holders of bonds admitted to a regulated market. Art 121 para. 2 BörseG specifies that the issuer must inform the bondholders equally (i.e. the requirement of equal treatment of information applies).

b. If I need to ask for a waiver or amendment to the terms of bonds issued by my business what steps do I need to take?

In the absence of relevant provisions regarding the subsequent amendment of bond terms and conditions, the exercise of the rights of bondholders to obtain the consent of all bondholders, which is otherwise required under civil law, is governed by the Act on Trustees (KuratorenG). This law provides for the judicial appointment of a trustee who must represent the interests of bondholders. The court-appointed trustee is not bound by the instructions of (the majority of) bondholders.

The KuratorenG is dispositive in nature and provides subsidiary rules for the organisation and decision-making rights of investors.

If the terms and conditions of the bonds contain specific rules, these will apply instead of, or amend, the statutory position under the KuratorenG with respect to decision-making rules for bondholders.

In practice, Collective Action Clauses (CACs), which allow the terms and conditions of the bond to be changed by a majority vote of the bondholders, are proving to be helpful. CACs generally provide for the convening of a bondholders' meeting in which – depending on the subject matter of the resolution – agreement can be reached with the issuer by simple or qualified majority. In any case, unanimity is not required. Rather, the outvoted bondholders are also bound by the resolved restructuring measures and cannot prevent their effective agreement.

c. What is the process for contacting bondholders and holding meetings to agree changes in the terms of my bond documents?

As there is no specific rule, the process regarding changes in the terms of bond documents depends on whether there is a Collective Action Clause allowing the terms and conditions of the bond to be changed by a majority vote of the bondholders. In the absence of relevant provisions, the Act on Trustees shall apply (see 15b above).

16. Is the availability of any return to business funding or relief either (a) conditioned on the use of proceeds for green or social purposes or (b) linked to sustainability-related outcomes? If so, what are the applicable purposes or outcomes?

The aid packages made by the Austrian government are neither conditional on the use of the proceeds for green or social purposes, nor linked to sustainability-related outcomes.