AUSTRIA Law and Practice Contributed by: Clemens Philipp Schindler, Schindler Attorneys
facto control that the separation of assets is no longer genuinely respected, the tax authorities may attribute the foundation’s income directly to the founder. Dis - tributions to beneficiaries are, in principle, subject to the flat rate of 27.5%. For a foreign trust or foundation, the threshold ques - tion is whether the entity is recognised as tax-opaque or treated as transparent. Where an Austrian-resident settlor or beneficiary also acts as trustee (or otherwise retains control – eg, through a revocable or non-dis - cretionary arrangement), the structure may be treated as transparent, with its income attributed to and taxed in the hands of that person. Conversely, a genuinely irrevocable and discretionary structure comparable to an Austrian private foundation may be treated as opaque, so that a contribution triggers foundation entry tax and only subsequent distributions are taxed at the beneficiary level. In practice, structures are therefore designed to avoid the very combination of beneficiary/founder and fiduciary roles that gives rise to transparency or attribution. The most popular legal options for asset protection include corporate structures in combination with shareholder agreements, private foundations and, to some extent, prenuptial and postnuptial agreements. In particular, private foundations can be a useful option to protect wealth from inheritance disputes (eg, forced heirship claims) and also from creditors of the next generation. According to Austrian private foundation law, the private foundation becomes the owner of the endowed assets. Claims of beneficiaries against the private foundation may be barred in the foundation’s documents. In addition, qualified board members of a private foundation appointed by the settlor may ensure that family assets are preserved. 4.2 Succession Planning A common way to retain influence over assets is to transfer them inter vivos but to agree on the right to usufruct. This can be applied to companies as well as real estate. The prohibition of sale and encum - 4. Family Business Planning 4.1 Asset Protection
brance is commonly used in the course of transferring real estate between family members. The transfer of shares in a company can also be restricted. Structured wills that include the establishment of an executor of the last will in combination with resolving conditions to prevent the violation of the testator’s will are common tools for prolonging influence and preserving wealth after death. Generally, the executor of the last will does not have such a strong position in Austria as in other jurisdictions, such as Germany. Similarly, while German inheritance law has a broader scope of inheritance contracts (which have a bind - ing effect, unlike wills) that are often used in relation to family-owned companies, such contracts are only available between spouses in Austria. 4.3 Transfer of Partial Interest Generally, no adjustment or discount of the fair market value applies in the transfer of parts of assets. In the case of a donation inter vivos, no gift tax applies and the donee may carry forward the acquisition costs of the donor. 5. Wealth Disputes 5.1 Trends Driving Disputes The most common reasons for wealth disputes and family disputes are: • divorce; • inheritance; • disagreements regarding the strategic direction of family businesses; and • insufficient corporate and estate planning struc - tures. Such disputes lead to corporate or succession liti - gation proceedings that may trigger disproportion - al damages for family businesses. Mediation has become more and more important in such situations. Family constitutions, shareholder agreements and clear assignment of power in family companies may also help to avoid long and costly litigation proceed - ings.
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