The current restrictions by the Austrian government for combating the COVID-19-pandemic lead to several complex legal and tax questions. Deloitte advisors respectively Jank Weiler Operenyi / Deloitte Legal advisors inform you about possible legal and tax implications and developments.
Working-time reduction due to Corona
As a response to the Corona crisis, a special working-time reduction model was introduced ("Kurzarbeit"). One requirement for the working-time reduction according to this model is an agreement between the social partners ("Sozialpartnervereinbarung"), to be concluded between the Chamber of Commerce and the Trade Union. This agreement also counts as a company agreement ("Betriebsvereinbarung") or an individual agreement (in companies without a works council). The social partners have agreed to sign such an agreement within 48 hours. Then, an application needs to be submitted to the Public Labour Office ("Arbeitsmarktservice – AMS"). Before the start of the working-time reduction, employees must have used up all their remaining vacation and overtime entitlements in full. After that, their working-time can be reduced to zero percent for a given time period; however, an employee must work for at least an average of 10% of their original working-time over a reference period of usually three months (an extension is possible). Depending on the income level of the employees whose working-time has been reduced, the AMS will remunerate between 80% and 90% of their net earnings during the reduced working-time period. For the first three months of the reduced working-time period, social security contributions are to be paid on the same basis as before the working-time reduction.
Special care leave
On the occasion of the closure of schools and kindergartens, an employer can grant their employee a leave of up to three weeks to care for their child(ren) under 15 years of age ("Sonderbetreuungszeit"). Employers are entitled to remuneration by the federal government for a third of the wages paid to the employee during the leave. This remuneration is capped at the level of the maximum contribution basis according to the General Social Security Act (ASVG). The respective claim needs to be raised at the local tax authority within six weeks after the day on which the measures will have been repealed. For the time being, this measure will be in force until 31 May 2020.
An employer is currently not allowed to unilaterally instruct their employee to work from home (home office). Instead, both parties need to reach an agreement. It is advisable to include a time limit or a revocation clause ("Widerrufsklausel") in the home office agreement, in order to prevent any eventual future legal claims to home office work. Additionally, the agreement should contain a definition of the temporary workplace, as well as provisions on reimbursement (if applicable). If a relocation clause ("Versetzungsklausel") is already included in the original employment contract with the employee, it may be possible for the employer to unilaterally direct the employee to work from home.
Home office and data security
The processing of personal data in the home office is subject to the same technical and organisational security measures as data processing in the company. Companies that only set up home offices for their employees in the context of the COVID-19-pandemic must in any case ensure that this is done in compliance with data protection regulations. For example, it must be ensured that the technical service providers used meet the requirements of the DSGVO and conclude binding processor agreements in accordance with GDPR. The company's own employees must also be reminded of the data protection requirements in the home office or appropriate rules for handling personal data in the home office must be drawn up.
Collection of employee (health) data by the employer and possible transfer
In order to protect their own employees but also the general public from COVID-19 infections, companies are allowed to collect corresponding (health)data from their employees – for example in terms of questions about last travel destinations or whereabouts and COVID-19 symptoms, taking fever measurements etc. These data collections are justified above all by the legitimate interests pursued by the employer and other employees and by protection against serious cross-border threats to health. Even the transfer of this data to the competent authorities is justified and actually obligatory under the Austrian Epidemic Act. However, this (health)data may only be collected to the extent absolutely necessary and must be deleted the COVID-19-pandemic has cease the latest.
Impact on existing loans
The negative development of the economic situation of a borrower as a result of the COVID-19-pandemic, combined with the risk that the borrower might no longer meet his or her payment obligations, may entitle a bank to exercise its extraordinary right of termination, its unilateral right to amend the loan agreement and/or to refuse (further) withdrawal of the loan. These issues may become relevant in case of a negative development of the company's economic situation, due to the current crisis. It is therefore recommended to contact the financing bank in due time and coordinate the further steps.
Liquidity and financing support for companies
In the context of the "COVID-19 Act" passed on 15 March 2020, the Austrian National Council introduced, among other things, the possibility of financial support for companies experiencing temporary financing and liquidity difficulties resulting from the COVID-19-pandemic. This financial support will be channeled through a company solely owned by the State (the "Abbaubeteiligungsaktiengesellschaft", hereinafter "ABBAG"). The aim is to maintain the solvency of these companies and avoid bankruptcy. In particular, ABBAG shall offer bridge loans and working capital financing to cover ongoing unavoidable costs during the period of reduced business activity. The Minister of Finance shall provide further specification of these measures (e.g. structure, purpose, amount, duration). In principle, such financing shall be granted to companies that have their registered office or a permanent establishment in Austria and conduct their main operating business in Austria. However, the formal execution may also be handled through a group company domiciled abroad, provided that the financing measure is of commercial benefit to the Austrian subsidiary. In addition, commercial and industrial SMEs, SMEs in the tourism and leisure industry and Lower Austrian SMEs in the commercial sector and tourism companies already have the possibility to obtain certain bridging guarantees/liabilities.
Lease Law – Prohibition to enter certain shops and business units
On the basis of an ordinance of the Minister of Social Affairs, the entry into certain shops for customers is prohibited from 17 March 2020 up to and including 22 March 2020. If, due to exceptional circumstances, such as an epidemic, a leased object can no longer be used for its intended purpose at all or only partially, the lessor is not obliged to restore the contractually owed use and the lessee is entitled to a (pro rata) reduction of the. Whether claims for a reduction of rent exist depends on whether the intended and contractually agreed use is impaired. Since the legal regulations can be deviated from by contract to a certain extent, it should be carefully examined in each individual case whether and to what extent the lessee has a claim.
Impact on Annual General Meetings
It is to be expected that the corona epidemic will also affect this year's Annual General Meeting season. Management boards of Austrian stock corporations are generally obliged to convene an Annual General Meeting within the first eight months of a financial year. The Annual General Meetings, which traditionally take place mainly from the end of March to the end of May, may therefore be postponed until the summer at the most. If, for example, the business situation does not permit a postponement of the Annual General Meeting, companies will be forced to consider alternatives. Possible alternatives include organizing the Annual General Meeting in a suitable location or asking shareholders to give proxies to voting representatives. Furthermore, if provided for in the articles of association, virtual General Meetings may be held in the form of satellite meetings, electronic remote participation or electronic remote voting.
In response to the COVID-19-pandemic, a recent decree of the Federal Minister of Justice has been issued to significantly restrict the personal interaction of persons in court. In the coming weeks court hearings in civil proceedings will therefore probably only take place in exceptional cases. Thus far, no specific rules or specifications have been issued for procedural deadlines. However, it can be assumed that courts will be generous in their assessment of applications for extension of deadlines (and for adjournment) in the near future.
Impact on Merger Control
Since 13 March 2020, the Austrian Federal Competition Authority is no longer open for the public is currently working on securing limited operations. From 16 March and until further notice, it is no longer possible to submit merger filings as hard copies to the authority (as it is currently required). The authority is working on making it possible to submit merger filings by electronic means (via the "ERV" system). The authority is currently conducting a test run of that system. The authority asks not to submit any merger filings until 20 March and asks companies to contact the authority in urgent cases. However, the switchboard of the authority is currently not permanently occupied. The fact that competition authorities in Austria and other countries have only limited operations and capacities very likely mean, that the authorities will, in the coming weeks, use the full review period and that even "no issues" cases will not receive early clearance. In addition, it cannot be excluded that some countries will suspend review periods generally or on a case-by-case basis (where a stop-the-clock mechanism is available). Companies should therefore anticipate delays and should adjustment transaction processes accordingly.
Cancellation of events
If an organizer is not allowed to hold an event due to a regulation under the Epidemic Act (or due to any other act of public authority), his contracts with ticket purchasers are cancelled due to "subsequent impossibility". The organizer must therefore refund the price of the tickets.
Conclusion of contract by means of electronic signature.
Where the written form requirement is necessary for contracts, they shall only be concluded by the parties' own signatures. Factual curfews and home offices as a result of the current COVID-19-pandemic often make it impossible for contracts to be concluded between present parties. In order to avoid the tedious mailing of physical contract originals back and forth, it is possible to use qualified electronic signatures in accordance with § 4 SVG, since these signatures meet the written form requirement. However, it should be noted that regardless of this option, certain types of contracts (such as last wills, real estate and company purchase contracts, etc.) require a signature in handwriting (and any other formal requirements) to be valid.
Consequences for contracts – Force majeure / loss of the basis of the transaction
In the near future, the question will often be raised as to what effects the COVID-19-pandemic will have on existing contracts of companies. In practice, it will have to be examined in particular whether companies, as "orderers" of goods and services, are entitled to refrain from further execution of the contract and to refuse the agreed payment. When examining this question, contractually agreed termination and cancellation provisions (e.g. force majeure clauses) must be analyzed first. Under the given circumstances, however, the mutual obligations arising from contracts may also cease to exist due to "subsequent impossibility" or "discontinuation of the basis of the transaction" (Wegfall der Geschäftsgrundlage).
Renaissance of the MAC-clause in M&A transactions?
For the past 10 years the practical importance of "Material Adverse Change" (MAC) – clauses has significantly reduced. It remains to be seen whether in light of the COVID-19-pandemic and the resulting disruption of local and global M&A markets this legal instrument will see a resurgence. Diligent sellers and buyers will henceforth – also in light of the business judgment rule – have to make informed decisions, if and to what extent the effects of the COVID-19-pandemic or similar incidents shall entitle to a withdrawal from an M&A transaction between signing and closing under a MAC-clause.
Deferral of Tax Prepayments and Social Security Contributions
The Ministry of Finance published information stating that the tax authorities shall allow – upon request of the taxpayer – the deferral or reduction of tax prepayments as quickly and efficiently as possible in the event of liquidity constraints due to the COVID-19-pandemic are explained credibly. Furthermore, it is possible to delay social security contributions. Further details regarding requirements and procedures can be found in the Breaking Tax News No. 1/2020 from March 15, 2020. Please be aware that as soon as the tax assessment 2019 has been made the fiscal authority will reassess the tax prepayments for 2020 based on the 2019 assessment. In that case a new application for reduction of tax prepayments will have to be filed.
Tax treatment of cancellation costs
If cancellations of business induced travels have to be made due to the COVID-19-pandemic, expenses in connection with the cancellation are typically tax deductible.
Tax treatment of default interest and reminder fees
In case contractual default interest or reminder fees occur due to current liquidity constraints, these costs are tax deductible as long as they arise in connection with business purposes.
Tax deductibility of costs in connection with home offices
In order to deduct expenses in connection with home offices in the employee's private apartment, it is obligatory that the workroom is the centre of the professional activity, that it is crucial and that it is (almost) solely used for business purposes. Mixed-used rooms (i.e. living room that includes a working desk) are not eligible as tax-considered workrooms. Expenses in connection with separate workrooms outside of the private apartment are generally tax deductible, provided that a workroom is crucial for this particular business. Work equipment, such as proportionate costs for private notebooks, internet, telephone, etc. are tax deductible regardless of the presence of a workroom. The proportionate of the professional usage can typically be estimated. If employees receive a reimbursement for internet, telephone, etc. by their employer, this amount has to be taxed with income tax. Nevertheless, the expenses are still deductible at the level of the employee under above-mentioned conditions.
Tax treatment of securities/share losses
Capital losses resulting from the disposal of shares/securities held as private assets can principally be offset with financial income of the same year (except i.e. bank and savings book interest). If in a financial year, the losses exceed the profits there is no option for private investors – unlike business investors – to carry these losses forward to subsequent years. Corporations can deduct a decrease in the price of financial assets regardless of whether it has been realized or not. An exceeding loss can be carried forward and – in consideration of the 75%-threshold – offset with subsequent profits.
Provisions for future profit decrease
Provisions for an expected decrease in earnings due to the COVID-19-pandemic, that will occur in future financial years, cannot be recognized for tax purposes.
Depreciation of assets
If the fair market value of assets is impaired due to developments in connection with the COVID-19-pandemic, a tax depreciation can be made. Whereas current assets (especially inventory) have to be depreciated in any case, depreciations on fixed assets can only be made in case of a persistent decrease in value.
Maximilian Weiler, Partner Jank Weiler Operenyi RA | Deloitte Legal
Christian Wilplinger, Partner Private Clients/Private Companies Deloitte Tax