Tax law proposal could fundamentally change transaction documentation - International Law Office

Introduction
New legislative proposal


Introduction

If certain conditions are fulfilled, then, pursuant to the Stamp Duty Act, stamp duty is currently imposed on the conclusion of the following agreements which could be relevant in the context of corporate finance transactions:

• loan agreements;
• credit agreements;
• tenancy agreements (rent and lease);
• assignments;
• suretyship and other security agreements;
• accessions to debt agreements;
• mortgages; and
• settlement agreements.

To trigger stamp duty, the agreement must be executed in writing and signed by hand. Verbally or implied concluded agreements do not trigger stamp duty; the omission of a written document does not constitute an abuse of stamp duty law. Stamp duty is triggered not only by documentation generating legal effects, but also by documentation evidencing existing legal effects. Furthermore, the Stamp Duty Act regulates certain cases in which the original signature of the relevant contracting party is not required to trigger stamp duty.

In case of loan agreements and credit agreements, stamp duty amounts to 0.8% or 1.5% (depending on the underlying terms) of the loan amount. Therefore, Austrian stamp duty has considerable influence on the drafting of documentation relating to corporate finance if one or more Austrian parties are involved.

Only complex structures can help to mitigate the risk of triggering stamp duty: currently the most common techniques are the execution of the agreement abroad, the entering into the agreement by factual offer-acceptance mechanisms or oral agreements that were documented only by lawyers. Moreover, particular attention has to be paid to substitute documentation (records or minutes including the main terms of the respective contract are signed by just one of the contracting parties, or third parties having certified in writing that other persons have concluded an agreement in their presence) not only during, but also in the aftermath of, successful transactions.

New legislative proposal

A recent proposal by the Federal Ministry of Finance, dated October 27 2010, aims to abolish stamp duty for loan and credit agreements and will come into effect on January 1 2011. Further, stamp duty for security documentation in relation to such loan or credit agreements, as well as the cession of accounts receivable in connection with factoring agreements shall be abolished under this initiative. The proposal reached the stage of a government bill on November 30 2010 and is highly likely to become a law within the next weeks. The reason for this tax relief is to counterbalance newly introduced measures in the banking sector such as the new bank tax.

Therefore, the abolition of stamp duty on loan and credit agreements will almost certainly lead to important changes in corporate finance transaction documentation as well as the entire transaction process. Long-discussed stamp duty guidelines which ensure that correspondence during the negotiation of agreements does not trigger stamp duty will no longer be necessary. Clearer transaction structures will become possible, allowing lawyers to focus on the important parts of the transaction and helping to reduce transaction costs.

Furthermore, post-transaction handling will become easier as notices to be served under agreements may be sent to Austrian parties without the risk of producing substitute documentation and therefore without the risk of triggering stamp duty. These advantages will become visible immediately as the new act will also abolish stamp duty on agreements concluded before January 21 2011 if the stamp duty was triggered by substitute documentation after this date.

For further information on this topic please contact Thomas Schirmer or Markus Uitz at BINDER GRÖSSWANG by telephone (+43 1 534 800), fax (+43 1 534 808) or email (schirmer@bindergroesswang.at or uitz@bindergroesswang.at). The BINDER GRÖSSWANG website can be accessed at www.bindergroesswang.at.