The introduction of  the group taxation scheme in 2005 has made it possible for Austrian parent companies to set off the losses of their foreign subsidiaries against the profits of the parent company and potential other Austrian companies of the group. According to this rule the losses determined according to the Austrian legislation have to be transformed in “Austrian losses” based on fiscal rules applied in Austria.
At the same time profits realized by the subsidiary are not counted for fiscal purposes in Austria. However, if an Austrian parent company is forced to depreciate the holding in a foreign subsidiary, this depreciation cannot be deducted for fiscal purposes.
If the subsidiary in the following year makes a profit, it can set off the losses suffered in the past through a loss carried forward. The parent company, however, is liable to subsequent taxation on the losses claimed in Austria in order to avoid that a loss is being claimed both in Austria and abroad. The advantage deriving from this procedure is therefore only a deferral of payment.
If a foreign subsidiary leaves the group of companies, the total of losses compensated abroad is subject to subsequent taxation. If the subsidiary has left the group of the parent company following liquidation or insolvency, the total of the losses not set off is subject to subsequent taxation in Austria. In this case, however, the depreciation until this moment not claimed for fiscal purposes may be deducted.
As of 1 July 2009, a tightening of these rules will be introduced. The Austrian parent company will be subject to subsequent taxation regarding all the losses not compensated abroad also in case the dimension of the subsidiary has been reduced compared to the dimension existing at the moment when the losses occurred in such a way that a comparison of the economic situation is not possible.
The simple downsizing of a foreign subsidiary causes therefore a fiscal burden and liquidity problems for the parent company.