The Austrian Federal Ministry of Finance just recently announced the extension of the fixed cost subsidy, ie funding guidelines for phase II of the fixed cost subsidy were now published. Compared to phase I of the fixed cost subsidy phase II provides for several beneficial changes with regards to the fixed costs subsidy. Since the now published funding guidelines for phase II have not been approved by the European Commission yet, the Commission’s approval has still to be awaited, although from a current standpoint no further major changes should be expected. Therefore, we would like to outline the most important topics within the funding guidelines for phase II of the fixed cost subsidy.
Who is eligible for the application?
Phase II of the fixed cost subsidy generally directly connects to phase I. Compared to phase I, within phase II companies with operational activities in Austria are generally already eligible for the fixed cost subsidy if there is a drop in sales of at least 30% due to Covid-19 (compared to 40% on phase I). However, compared to phase I the requirements for eligible companies were extended for phase II by the following topics:
- Within the last three tax years assessed no abuse in the meaning of Sec 22 Fiscal Code (BAO) was assessed legally binding with a min effect to the CIT/income tax base of at least EUR 100,000 pa;
- Extension of the restriction criterion in accordance with Sec 12 para 1 no 10 CIT Act to the last five assessed tax years (compared to three years in phase I) and extension of the restriction criterion to Sec 10a CIT Act (with the exception if the application of the provisions was disclosed in the tax return, provided that the amount to be added back for tax purposes does not exceed EUR 500,000);
- The company may not have a registered office or branch in countries listed on the EU list of “non-cooperative jurisdictions for tax purposes” and may not primarily earn passive income within the meaning of Sec 10a para 2 CIT Act there.
All other requirements and restrictions for companies excluded from the fixed cost subsidy generally equal the requirements already set forth in phase I (see our article dated 14.05.2020)
What is the volume of the fixed costs subsidy in phase II?
In general, the consideration periods, for which a fixed costs subsidy in phase II can be applied for, was extended until 15 March 2021. Like already required in phase I the drop in sales within the respective consideration period has to be assessed to determine the volume of the fixed cost subsidy. While phase I only provided for three fixed rates of the fixed cost subsidy depending on the drop in sales (25%/50%/75%), the rate of the fixed cost subsidy in phase II equals the percentage of drop in sales for the respective consideration period. For example, if the drop in sales amounts to 58%, the fixed cost subsidy amounts to 58% of the eligible fixed costs during the applied consideration period (therefore, a maximum of up to 100% subsidy is possible).
The fixed cost subsidy for phase II is caped with EUR 5 million per company. In this respect it should also be noted that contrary to the funding guidelines for phase I there is no clause extending this cap to the entire group of related companies, but rather only to the applying company itself. However, it has to be awaited whether there will be any changes resp an extension of this cap to the entire group of related companies during the European Commission’s approval process.
Which consideration periods are available for phase II of the fixed cost subsidy?
As already known from phase I, also for phase II of the fixed cost subsidy, the drop in sales can either be assessed over quarters in total or by applying monthly consideration periods. However, in phase II a total consideration period of up to six months (resp two quarters) is possible (compared to three months or one quarter in Phase I). In addition, for choosing consideration periods for phase II, it has to be taken into account whether and for which consideration periods a fixed cost subsidy was applied for in phase I.
If assessing the drop in sales based on quarters, the following periods apply (depending on the application for a fixed cost subsidy in phase I):
- Comparison of the 3rd and 4th quarter 2020 with the 3rd and 4th quarter 2019, if in phase I the consideration period applied ended before July 2020. In this case, the fixed costs between 16 June 2020 and 15 December 2020 are refunded by the fixed cost subsidy in phase II.
- Comparison of the 4th quarter 2020 and the 1st quarter 2021 with the 4th quarter 2019 and the 1st quarter 2019 if in phase I the consideration period applied did not end before July 2020. If no fixed cost subsidy was applied for at all in phase I, the fixed costs between 16 September 2020 and 15 March 2020 are refunded by the fixed cost subsidy in phase II.
As an alternative to the quarterly based assessment of the drop in sales an assessment based on monthly consideration periods is possible (as in phase I). If choosing the option with monthly consideration periods, the fixed costs of the corresponding consideration period qualify for the fixed cost subsidy in phase II. Up to six consecutive periods of the following consideration periods can be selected for phase II of the fixed cost subsidy (the drop in sales always has to be determined in total over the whole period selected):
- consideration period 1: 16.6. 2020 to 15.7.2020
- consideration period 2: 16.7.2020 to 15.8.2020
- consideration period 3: 16.8.2020 to 15.9.2020
- consideration period 4: 16.9.2020 to 15.10.2020
- consideration period 5: 16.10.2020 to 15.11.2020
- consideration period 6: 16.11.2020 to 15.12.2020
- consideration period 7: 16.12.2020 to 15.1.2021
- consideration period 8: 16.1.2021 to 15.2.2021
- consideration period 9: 16.2.2021 to 15.3.2021
Due to the overlap of the consideration periods for phase II with the ones of phase I of the fixed cost subsidy, periods for which a fixed cost subsidy was already claimed for in phase I may not be chosen for phase II. If a company applied for a fixed cost subsidy in phase I with a consideration period ending before 16 June 2020 consideration period 1 has to be applied as first period for phase II (if applying monthly consideration periods). If for phase I a consideration period ending on 16 June 2020 or later was applied, for phase II a consideration period has to be chosen that directly follows the one applied for in phase I. If a company did not apply for a fixed cost subsidy in phase I, only consideration period 4 and the following periods can be selected for phase II (if applying monthly consideration periods).
Which types of fixed costs qualify for funding?
All types of fixed costs that already qualified for a fixed cost subsidy in phase I (see our article dated 14.05.2020) are also eligible for funding in phase II. However, some additional clarifications were included for single types of these fixed costs (eg equaling of shareholding-managing directors with entrepreneurial “salaries”, which was previously only clarified within the FAQ). Moreover, the catalogue of qualifying fixed costs for phase II was extended by the following types of fixed costs compared to phase I:
- depreciation according to Sec 7 para 1 Income Tax Act for assets used within the business activity and if it was acquired prior to 16 March 2020;
- If movable assets that represent the primary operating assets of the company are not legally owned by the company, an amount corresponding to the depreciation for these assets may be included as fixed costs (assignment of depreciation for movable assets);
- Leasing payments also in the case of finance leasing without limitation to the financing component of the leasing payment (unless the lessee considers as fixed costs the depreciation resp an assignment of depreciation for leased movable assets – as an option; in this case limited to the financing component);
- Ultimately wasted expenditure: this means expenses after 1 June 2019 but before 16 March 2020 that directly relate to the preparation for generating sales within the consideration period chosen, which could however not be realized due to Covid-19 (with the exception of accruals and impairments).
If the company also applied for a fixed cost subsidy in phase I, depreciation, assigned depreciation for movable assets, leasing payments and ultimately wasted expenditure (which are now also covered by the eligible fixed costs) within the consideration period chosen for phase I may be considered as additional fixed costs for the consideration period in phase II.
For companies with sales of less than EUR 100,000 within the last assessed tax year, which constitute the main source of income for the entrepreneur, the fixed costs can alternatively be determined based on a flat rate (as an option). If applying this option, a flat rate of 30% of the assessed drop in sales may be considered as eligible fixed costs.
How is the application to be submitted?
As already for phase I, applications for the fixed cost subsidy in phase II must be submitted via FinanzOnline. Applications can be submitted from 16 September 2020 onwards until 31 August 2021 at the latest (same end date as for phase 1). The payment of the fixed cost subsidy in phase II is generally split into two tranches (phase I still with three tranches) as follows:
- First tranche: 50% of the expected fixed cost subsidy for phase II; Applications can be submitted from 16 September 2020 onwards. In the first tranche (as in the first tranche of phase 1), the drop in sales has be determined in accordance with the Austrian VAT-Act.
- Second tranche: remaining part of the fixed cost subsidy for phase II; Applications can be submitted from 16 December 2020 onwards. In the second tranche, the drop in sales is however to be determined based on the revenues for Austrian income tax purposes.
If applications for a fixed cost subsidy in phase II are deferred until 16 December 2020 (ie until the second tranche is available) the entire fixed cost subsidy for phase II can be received by one single application (as it is currently the case within phase I due to the second tranche that has already been opened). In addition, as in phase I, a tax advisor, auditor or accountant must submit the applications (except applications within the first tranche with a maximum fixed cost subsidy of EUR 12,000).
What else needs to be considered?
As in phase I, the funding guidelines for phase II of the fixed cost subsidy provide for a limitation of bonus payments made to executive board members and managing directors as well as restrictions concerning dividend and profit distributions/withdrawals. While the limitation of bonus payments to executive board members and managing directors to 50% of bonus payments for 2019 has to be considered for 2020 and 2021 in phase II (in phase I only for 2020), no changes to the limitation of dividend distributions have been made compared to phase 1. Therefore, profit distributions and buybacks of own shares are still prohibited only between March 16, 2020 and March 16, 2021. Additionally, a moderate dividend distribution policy has to be applied until December 31, 2021.
Furthermore, when applying for the fixed costs subsidy, the applying company has to commit not to change the consideration period applied for in phase I afterwards resp to only apply for those consideration periods in phase I that directly predate the consideration period chosen for phase II.
Additionally it should be highlighted that the funding guidelines for the fixed cost subsidy in phase II limits the overall budget for both phase I and II to a total amount of EUR 12 billion. Thus, further EUR 4 Billion have been allocated for fixed costs subsidies.
In summary, the extension of the fixed cost subsidy to phase II as well as the extension of the qualifying fixed costs as indicated in the published funding guidelines is highly appreciated. However, as the funding guidelines was published subject to the approval of the European Commission, further developments and the confirmation by the European Commission have to be awaited.
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