Austria - PwC · AUSTRIA International Comparison of Insurance Taxation January 2005 Austria – General Insurance (continued) Claims incurred but not reported (IBNR) Estimated according

AUSTRIAInternational Comparison of Insurance TaxationJanuary 2005

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Austria – General InsuranceDefinitionDefinition of property and casualty insurance

company

AccountingA company to which insurance legislation

applies other than Life and health insurance.

TaxationNot defined by tax legislation.

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Commercial Accounts/Tax andRegulatory ReturnsBasis for the company's commercial accounts

Regulatory return

Accounting

General accounting principles according to

Austrian Commercial Code and Austrian Stock

Corporation Act as well as special accounting

principles in accordance with Insurance

Supervisory Act (VAG).

Domestic insurance companies have to report

in detail within five months after the end

of the financial year directly to the Insurance

Supervisory Authority (“Finanzmarktaufsicht”).

The insurance company has to file the following

documents: long-form report, approval of year-

end financial statements, certified completed

copy of the protocol of the meeting concerning

the release of managing board and supervisory

board, proof of the publication of the year-end

financial statement. Concerning the consolidated

financial statement, the insurance company has

to file the long-form report and the proof of the

publication of the year-end financial statement.

Taxation

Tax return has to be filed based on commercial

code as adjusted for tax purposes. Insurance

companies are subject to corporate income tax

with at least 20 % of the profit excluding

deduction of premium refunds (minimum tax)

from the life insurance business, from the health

insurance business, from the accident insurance

business with premium refund and from other

insurance divisions (calculated separately for

each division).

N/A

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Austria – General Insurance (continued)

Tax return N/A Corporate Income Tax return: For corporate

income tax purposes a tax return is prepared

on an annual basis.

VAT return:

For VAT purposes tax returns are prepared

on an annual basis and preliminary tax returns

are prepared on a monthly basis. For Insurance

Tax and Fire Protection Tax purposes the insurer

has to file monthly and annual tax returns.

Technical Reserves/Equalisation Reserves

Unearned premium reserves (UPR)

Unpaid claims reported

Accounting

Calculated by pro-rating premiums on a

policy-by-policy basis; reliable apportionment

methods possible (1/24 method).

Generally calculated on case-by-case basis.

Under certain circumstances also lump-sum

method possible.

Taxation

Tax-deductible.

Beginning with assessment 2001, 30% of this

reserve is considered to be short-term and

therefore fully tax-deductible. 70% of the

reserves are considered to be long-term

reserves. Only 80% of long-term reserves are

tax-deductible. Transitional provisions apply.




reserves are considered to be long-term reserves

are tax-deductible. Transitional provisions apply.

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Claims incurred but not reported (IBNR) Estimated according to past years experience. Beginning with assessment 2001, 30% of this
























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Unexpired risks

General contingency/solvency reserves

Equalisation/catastrophe reserve

N/A

Minimum equity capitalisation requirements

for insurance companies. For the covering of

losses mutual insurance companies have to set

up a solvency reserve.

Equalisation reserves under a formula of the

Supervisory Authority (reflecting the standard

deviation of net losses for the 15 prior years)

have to be set up. Special equalisation reserve

for nuclear and pharmaceutical risks.

N/A

No tax implication

Beginning with assessment 2001, only 50 % of

the adjustments are tax-deductible, 50 % of the

provision of the year 2000 had to be spread over

three years (2001 – 2003).

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Expenses/RefundsAcquisition expenses

Loss adjustment expenses on unsettled claims

(Claims handling expenses)

Experience-rated refund

AccountingNo capitalisation of acquisition expenses,

immediate deductions.

Included in the claims reserves.

Deduction permitted for refund of premiums

due to low claim ratios.

TaxationTax deductible.

Tax deductible.

Tax-deductible.

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ReinsuranceReinsurance premiums and claims

AccountingReinsurance claims reduce the technical

reserves. Premiums paid to the reinsurer are

treated as expenses.

TaxationAllowed as per accounts.

6

Mutual CompaniesMutual companies (All profits returned to

members)

AccountingProfit for the year has to be distributed to the

members. Special rules for mutual companies

in accordance with section 26 to section 73

Insurance Supervisory Act.

TaxationNo special rules.

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InvestmentsGains and losses on investments

Investment reserves

Investment income

AccountingGenerally accepted accounting principles.

Realised gains and realised and unrealised

losses are included in P&L statement.

Unrealised gains not recognised in financial

statements. Unrealised losses included

in P&L statement.

Included in P&L statement.

TaxationAllowed as per accounts. Investment income

derived from funds may be treated differently

as in P&L statement.

Allowed as per accounts. Under certain

conditions write off spread over seven years.

Included in taxable income. Dividends may

be exempt under affiliation privilege or possibility

of foreign tax credit. Investment income



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Austria – Other Tax FeaturesFurther corporate tax featuresLoss carryovers

Foreign branch income

Domestic branch income

Long-term accruals (special transition rules applicable)

Corporate tax rate

TaxationNo expiring date for loss carry forward, no loss carry back. Beginning with

assessment 2001, losses can only be set off against 75% of the annual

profit, i.e. 25% of the annual profit will always be taxed.

Foreign branch income either fully taxable with credit of foreign income tax

paid or exemption method depending on the relevant double tax treaty.

Unilateral relief may be possible in absence of a double tax treaty.

Calculated under ordinary rules based on branch accounts.

Beginning with assessment 2001, only 80% of the long-term accruals

are tax-deductible.

34% (from 2005 onwards 25%)

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Other tax featuresPremium taxes

Capital taxes

Captive insurance companies

TaxationIn general 4% insurance premium tax on all gross premium income.

In special cases the insurance premium tax rate varies from 11%

(life insurance with a duration up to ten years) to 1% (health insurance).

Fire protection tax at a rate of 8%.

Capital contributions by shareholders and share issues are subject to

1% capital transfer tax.

Status not clear. From a tax point of view captive insurance

companies are not considered to be insurance companies if they do not

carry out insurance business on arm’s length principle. Possible transfer

pricing problem.

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Austria – Life InsuranceDefinitionDefinition of Life Assurance companies

AccountingA company to which insurance legislation

applies and which carries out Life Assurance.

TaxationNot defined by tax legislation.

1

Commercial Accounts/Tax andRegulatory ReturnsBasis for the company’s commercial accounts

Regulatory return

Accounting

General accounting principles according to

Austrian Commercial Code and Austrian Stock

Corporation Act as well as special accounting

principles in accordance with section 80 to

section 86 Insurance Supervisory Act (VAG).

Domestic insurance companies have to report

within five months after the end of the financial

year directly to the Insurance Supervisory

Authority (“Finanzmarktaufsicht”). The insurance

company has to file the following documents:

long-form report, approval of year-end financial

statements, certified completed copy of the

protocol of the meeting concerning the release

of managing board and supervisory board, proof

of the publication of the year-end financial

statement. Concerning the consolidated financial

statement the insurance company has to file the

long-form report and the proof of the publication

of the year-end financial statement.

Taxation

Tax return has to be filed based on commercial

code as adjusted for tax purposes. Insurance

companies are subject to corporate income tax

with at least 20 % of the profit excluding

deduction of premium refunds (minimum tax)

from the Life Insurance business.

N/A

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Austria – Life Insurance (continued)

Tax return N/A Corporate Income Tax return: For corporate

income tax purposes a separate tax return

is prepared on an annual basis.

VAT return: For VAT purposes separate tax

returns are prepared on an annual basis

and preliminary tax returns are prepared

on a monthly basis. For Insurance Tax purposes

the insurer has to file monthly and annual

tax returns.

General approach to calculation ofincomeAllocation of income between shareholders

and policyholders

Accounting

Profits returned to the policyholders are treated

as expenses.

Taxation

The provision for premium refunds and the

profits returned to the policyholders are under

special conditions as set out in section 17

Austrian Corporate Income Tax Act,

tax-deductible (20% minimum tax).

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Calculation of investment returnCalculation of investment income and capital

gains

AccountingTotal income approach. Investment income

and realised capital gains are included in

the P/L statement.

TaxationTaxable as per accounts. Investment income



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Calculation of underwriting profitsor total incomeActuarial reserves

Acquisition expenses

Zillmerisation

AccountingCalculation of actuarial reserves regarding


No capitalization of acquisition expenses.

(zillmerisation of accrual for policyholders

deposit)

TaxationBeginning with assessment 2001, only 80%

of long-term reserves are tax-deductible.

Tax deductible.

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Austria – Life Insurance (continued)

Gains and losses on investments

Reserves against market losses on investments

Dividend income

Policyholder bonuses

Other special deductions

Generally accepted accounting principles.

Realised gains and realised and unrealised

losses are included in P&L statement

Unrealised losses must be included in P&L

statement. Valuation at lower of cost or market

value as a rule.

The gross amount is included in P&L statement.

Provisions for refund of premiums. Bonuses paid

to the policyholders as well as provision for

refund of premiums are treated as expenses.

N/A

Tax deductible. Investment income derived

from funds may be treated differently as

in P&L statement.

Tax deductible. Under certain conditions

write off spread over seven years.

Gross amounts included in taxable income.

Dividends may be exempt under affiliation

privilege or possibility of foreign tax credit.

Bonuses paid to the policyholders as well as

provisions for refund of premiums are tax-

deductible under special conditions as set out in

section 17 Austrian Corporate Income Tax Act.

N/A

ReinsuranceReinsurance

AccountingNo special rules in comparison with general

insurance. Reinsurance claims reduce the

technical reserves. Premiums paid to the

reinsurer are treated as expenses.

TaxationNo special rules. Premiums paid to the reinsurer

are tax-deductible.

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Mutual companies/StockcompaniesMutual companies

AccountingProfit for the year has to be distributed to the

members. Special rules for mutual companies

in accordance with section 26 to section 73


TaxationNo special rules.

7


Austria – Other Tax FeaturesFurther corporate tax featuresLoss carryovers

Foreign branch income

Long-term accruals (special transition rules applicable)

Corporate tax rate

TaxationNo expiring date for loss carry forward, no loss carry back. Beginning with

assessment 2001, losses can only be set off against 75% of the annual

profit, i.e. 25% of the annual profit will always be taxed.

Foreign branch income either fully taxable with credit of foreign income tax

paid or exemption method depending on the relevant double tax treaty.

Unilateral relief may be possible in absence of a double tax treaty.

Beginning with assessment 2001, only 80% of the long-term accruals are

tax-deductible.

34% (from 2005 onwards 25%)

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Policyholder taxationDeductibility of premiums

Interest build-up

TaxationUp to a maximum of Euro 2,920 a year for the taxpayer, another EUR 2.920

for the spouse if he/she has no or very low income and another EUR 1.460

for families with 3 or more children, premiums for certain voluntary health,

life and accident insurance contract are recognised as a special expense

depending on taxable income (the deduction is phased out if the income

exceeds EUR 36.400, over Euro 50,900 no deduction possible). From the

calculated amount or the actual premium paid, whatever is lower, a quarter

is tax-deductible.

Not taxable.

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Austria – Other Tax Features (continued)

Proceeds during lifetime

Proceeds on death

Generally not taxable. Taxation does apply if proceeds are paid as annuity

and the payments exceeds the sum insured or if proceeds are paid under

certain short term (duration of less than 10 years) single premium life

insurance contracts and the proceeds received exceeds the premium paid.

Not taxable.

Other tax featuresPremium taxes

Capital taxes

Captive Insurance companies

TaxationInsurance tax of 11% for life insurance with a single premium with

a duration up to ten years and insurance tax of 4% in all other cases

of life insurance.

Capital contributions by shareholders and share issues are subject to

1% capital transfer tax.

Status not clear. From a tax point of view captive insurance companies

are not considered to be insurance companies if they do not

carry out insurance business on arm’s length principle. Possible

transfer pricing problem.

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Austrian Tax Reform 2005 – General informationReduced corporate income tax rate of 25 %

New system of group taxation

The corporate income tax rate will be reduced from currently 34% to 25%

from 2005 onwards.

An attractive system of group taxation will be implemented beginning with

assessment 2005. If two or more companies exercise the option to form

a tax group, the taxable results of the domestic “group members” will be

attributed to their respective parent company and will be taxed on the

level of the “group parent”. Tax losses of group companies can, thus, be

consolidated with taxable profits of other group companies. Profits are

only attributed for tax purposes; there is no requirement for a statutory

profit/loss takeover agreement.

The following conditions have to be met in order to qualify as a tax group:

• a qualifying participation of more than 50 % (directly or indirectly e.g.

via a partnership) and

• a written application to form a tax group which has to be filed with

the competent tax office and which has to include an agreement

on the allocation of tax costs.

In the case of a domestic tax group, the attribution of income is effected

at 100 %, even in the case of existing minority shareholders (Only in the

case of a tax group with more than one parent company, is a proportional

profit/loss allocation applied). In order neither to advantage nor

disadvantage minority shareholders, an appropriate system of tax

allocations between the group companies has to be established.

Foreign losses

A tax group can also include foreign group members. Losses of foreign

subsidiaries within a tax group can be used against Austrian profits

(proportionally to the extent of direct partnership held by group members).

For this purpose the foreign losses have to be adapted so as to comply

with Austrian tax provisions. Profits realized by foreign subsidiaries will not

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Austrian Tax Reform 2005 – General information (continued)

Deduction of interest for the acquisition of participations

Goodwill depreciation after the acquisition of a domestic participation

Unpaid claims reported and Claims incurred but not reported (IBNR)

become subject to taxation in Austria. To the extent that foreign losses are

used abroad at a later point in time (i.e. offset against foreign taxable

profits) or if a foreign subsidiary leaves the group (except for liquidation or

insolvency), the tax benefit obtained from offsetting these losses against

Austrian profits has to be refunded.

Under current tax law, interest for the acquisition of participations can

generally not be deducted. From 2005 onwards interest on loans taken out

to acquire domestic or foreign participations will generally be tax

deductible (as long as the arm’s length principle is observed). Interest will

be deductible regardless of whether the involved companies are part of a

tax group or not.

Upon acquisition of a participation in an Austrian company after December

31, 2004 goodwill (including hidden reserves in depreciable assets) can be

deducted tax effectively over a period of 15 years, if the following

conditions are met:

• the acquired company must be engaged in active business;

• it must be resident for tax purposes in Austria;

• it must be a member in a tax group;

• acquisitions of participations from a related party are excluded.

The basis for goodwill depreciation is restricted to 50 % of the total

acquisition cost.

Beginning with assessment 2005, 70 % of these reserves are considered

to be short-term (detailed information see Austria – General Insurance 3

Technical Reserves/Equalisation Reserves)

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Contact informationAudit purposesGuenter Wiltschek +43 1 50188 - 2100

Franz Gogg +43 1 50188 - 1300

Liane Hirner* +43 1 50188 - 1325

Tax purposesFriedrich Roedler +43 1 50188 - 3600

Dieter Habersack* +43 1 50188 - 3626

* Primary contacts

e-mail: [email protected]

address: Erdbergstrasse 200

1030 Wien

>

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Austria - PwC · AUSTRIA International Comparison of Insurance Taxation January 2005 Austria – General Insurance (continued) Claims incurred but not reported (IBNR) Estimated according

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