AUSTRIA Law and Practice Contributed by: Clemens Philipp Schindler, Schindler Attorneys
be attributed to the beneficiaries under the con - ditions mentioned above (regarding the settlor). This would be the case with bare trusts, where the fiduciary acts on the instruction of the beneficiar - ies and has to transfer the assets to them upon request. The same applies if the settlor has exten - sive rights regarding the trust assets, and these rights are transferred to the beneficiaries after the settlor’s death. • Allocation of income to the fiduciary (transpar - ency of the trust) – the fiduciary manages the trust assets separately from their own assets (either physically or through accounting measures). An attribution of the income to the fiduciary is not permissible if they are fulfilling instructions given by the settlor and thus are not free to dispose of the source of income. Neither the success nor failure of the management will have an impact on the fiduciary. An attribution will only be possible in the exceptional case that the fiduciary violates their powers. • Allocation of income to no other person (non-trans - parency of the trust) – a trust should be qualified as a separate taxable (non-transparent) entity if the income cannot be attributed to a person (settlor, beneficiary or fiduciary). This is the case if neither settlor, beneficiary nor trustee have comprehen - sive instruction and supervision rights regarding the management of the trust assets. The settlor, for example, has no such rights in the following structures: (a) a testamentary trust; (b) an inter vivos trust after the settlor passed away; and (c) a discretionary trust where they have trans - ferred the entire management to the fiduciary with full discretion and the beneficiaries are determined. Taxation of Individuals of a Trust Regarding distributions from foreign trusts to individu - als who are subject to unlimited income tax liability in Austria, the following two situations need to be dis - tinguished. • When the trust is qualified as a non-transparent foreign entity, no allocation of the trust’s income to the individual is necessary; rather, the individual is
subject to tax only regarding distributions received from the trust. The tax rate would be 27.5% if the trust is comparable to an Austrian foundation; otherwise, the progressive tax rate of up to 55% would apply. • When the trust is qualified as a transparent foreign entity, the income of the trust is allocated to the individual from a tax perspective, regardless of received distributions; the individual will be subject to tax on the current income of the trust (eg, inter - est and dividends received by the trust are taxed at a rate of 27.5%). 3.4 Tax Consequences of Fiduciary and Beneficiary Roles Austria does not recognise the common law trust; the domestic vehicle is rather the private foundation ( Privatstiftung ) under the Private Foundation Act, and the analysis generally differs for domestic foundations and for foreign trusts. For a domestic private foundation, a beneficiary can - not, as a matter of company law, serve as a fiduci - ary at board level; beneficiaries and persons closely related to them are barred from membership of the management board ( Stiftungsvorstand ) under Sec - tion 15 (2) of the Austrian Private Foundation Act. A beneficiary may sit on an advisory board ( Beirat ), but Supreme Court case law restricts a beneficiary- dominated advisory board that exercises board-like control (in particular the power to appoint and dismiss the board), treating it, in substance, like a supervisory body subject to the same incompatibility restrictions. The more significant tax consequences arise where the founder ( Stifter ) retains control over the private foundation. While the mere reservation of a right of revocation by an individual does not, in itself, deprive the foundation of its status as a separate taxable per - son, the exercise of that right generally causes the foundation assets to revert to the founder and is treat- ed as a taxable distribution, subject to the flat rate of 27.5% (to the extent the amount exceeds the found - er’s tax-recognised contributed capital). Where the statutory requirements are met, however, the repay - ment may instead qualify as a tax-neutral repayment of contributed capital ( Substanzauszahlung ). Beyond this, where the founder exercises such extensive de
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