Tax group under a private foundation: Eligible entities under section 9 KStG

Group taxation is a special form of result allocation. The tax-relevant result of a group member is allocated to the participating group member or to the group parent. The income of the connected entities is therefore brought together at the level provided by the tax group rules.

That effect requires a statutory group structure. A foundation deed, family ownership or practical control does not replace the requirements of section 9 KStG. Before a group application is filed, ownership, shareholdings, voting rights and the tax function of every relevant entity must be assigned clearly.

This distinction matters for a private foundation. It may be the shareholder of a company that takes a group role. The result allocation then takes place at the level of that eligible corporation under the tax group rules.

Section 9(2) KStG names corporations and business cooperatives with unlimited tax liability that fall under section 7(3) KStG as group members. These are the typical domestic companies through which an Austrian tax group is organised.

The provision also covers comparable corporations without unlimited tax liability. They must be resident in a Member State of the European Union or in a state with comprehensive mutual administrative assistance. Section 9(2) additionally requires an exclusive financial connection with group members that have unlimited tax liability or with the group parent.

A private foundation does not become a corporation merely because it holds shares in a GmbH or AG. The legal form of the particular corporation determines whether it can be a group member. The foundation's ownership explains the background of the investment, but it does not replace the assessment of the company itself.

A group member also cannot be a co-participant in a participation community. This restriction must be checked in multi-level structures and in a planned group involving several parent companies.

Section 9(3) KStG contains a separate catalogue for the group-parent role. It includes corporations and business cooperatives with unlimited tax liability, as well as mutual insurance associations within the meaning of the Insurance Supervision Act 2016 and credit institutions within the meaning of the Banking Act.

Certain entities with limited tax liability may also be group parents. These include comparable domestic legal forms listed in Annex 2 to the Income Tax Act and comparable companies with their registered office and place of management in the European Economic Area. For the EEA variant, a branch registered in the Austrian Companies Register is required, and the participation in the group members must be attributable to that branch.

Under its requirements, section 9(3) also permits a participation community to act as group parent. This does not remove the requirements for the participating entities. Each co-participant must belong to the eligible circle and the statutory participation thresholds must be reached.

Section 9(2) and section 9(3) set out the possible group members and group parents. The private foundation is not included in either catalogue. In a foundation-owned corporate group, the foundation may therefore hold the shares, while an eligible corporation or participation community takes the tax group role.

Three levels should be kept separate in practice. The foundation owns or manages the investment. A company may stand at the top as group parent. Other companies may join as group members if their legal form, tax status and financial connection meet the statutory requirements.

This separation also supports sound governance. The foundation board must assess the ownership structure, the foundation purpose and the tax implementation. The article on the private foundation as a corporate shareholder explains why ownership, corporate management and control should not be merged into one informal role.

This conclusion concerns the personal scope of section 9 KStG. It answers a different question from the taxation of distributions, dividends or other income of the private foundation.

Under section 9(4) KStG, a direct financial connection generally exists when the participating corporation holds more than 50 percent of the share capital, nominal capital or cooperative capital and more than 50 percent of the voting rights in the corporation being held. Both elements must be assessed together.

The provision also covers certain indirect holdings through a partnership or through direct holdings in other group members. Economic proximity, a family resolution or a majority in an informal committee does not replace the statutory capital and voting-rights assessment.

Under section 9(5), the connection must exist throughout the relevant financial year of the group member. Tax-effective retroactive acquisitions or transfers may be relevant to that assessment. The ownership chart, articles of association, Companies Register extracts and voting agreements should therefore be checked against the same reference date.

The foundation board needs an up-to-date ownership overview for the initial assessment. It should show which company is held directly or indirectly, who controls the capital and voting rights, and which company is intended to act as group parent.

The file should also contain articles of association, Companies Register extracts, evidence of shareholdings, voting agreements and the relevant financial years. For a foreign company, evidence of legal form, residence, mutual assistance and any Austrian branch must be added.

The foundation deed and the foundation board's resolutions should show why the ownership structure is consistent with the foundation purpose. The tax group application is a separate document. It is filed by the entities provided for by the law and must contain the required information and declarations.

For a participation community, record the percentage and status of every co-participant and the joint control. A small deviation may change the planned structure. The article on clear decision-making in a foundation dispute provides a related perspective on complete records and reliable resolutions.