A recent ruling by the Austrian Federal Tax Court (BFG 29.11.2023, RV/7104160/2019) is bound to have far-reaching implications in practice.
1. Legal transaction fees for tenancy and lease agreements
Tenancy and lease agreements concluded in Austria are subject to a legal transaction fee in the amount of 1% of three years’ gross rent for unlimited agreements. For fixed-term agreements, the legal transaction fee equals 1% of the gross rent payable over the entire term of the agreement. Fees will therefore be particularly high in cases where agreements provide for high rent and/or a long term.
2. Fee exemption for residential leases
The Austrian Fee Act (Gebührengesetz, GebG) exempts “agreements on the lease of residential space” from legal transaction fees (section 33 fee item 5 para. 4 item 1).
In a recent case before the Federal Tax Court (Bundesfinanzgericht, BFG), the question in dispute was whether or not this exemption provision also applies to hotel lease agreements between a lessor and a hotel operating company as the lessee.
3. Federal Tax Court ruling on hotel lease agreements
Contrary to administrative practice, the Federal Tax Court affirmed in its recent ruling that the fee exemption applies to hotel lease agreements.
This is remarkable because in its previous rulings, the Court had always proceeded from the premise that such agreements were subject to the fee, but had not addressed whether or not the exemption provision might also apply to hotel lease agreements.
As the Austrian Tax Authority does not share the Federal Tax Court’s legal assessment, it has lodged an appeal on points of law with the Supreme Administrative Court (Verwaltungsgerichtshof, VwGH). Therefore, it remains to be seen if the latter will uphold the recent ruling.
The Federal Tax Court considered two questions to be material:
- Does the leased property constitute “residential space”?
- Does the leased property have to be used directly by the lessee for personal occupation in order for the fee exemption to apply?
Regarding the first question of whether or not the leased property constitutes “residential space”:
The Federal Tax Court held that since the greater share of space is used for apartments, it follows that the leased property constitutes “residential space”.
The Court did not comment on the specific furnishings and fittings necessary for the rooms to be considered as “residential spaces”. In the case in question, such commentary was not necessary, as the individual apartments all have living and sleeping areas as well as fully equipped kitchens.
Nor did the Court consider it material that additional services (such as meal provision, cleaning and concierge services) are offered, since they do not predominate over the residential purpose, but merely complement the accommodation offer.
Regarding the second question of whether or not the leased property has to be used directly by the lessee for personal occupation in order for the fee exemption to apply:
The Federal Tax Court proceeds from the premise that the lease agreement does not have to serve directly to meet the lessee’s personal residential needs, but that the intended purpose of the leased property is material. As the leased property will be used as residential space under the obligation to operate a hotel contained in the lease agreement, the exemption provision applies.
Our recommendations:
- For recently concluded hotel lease agreements, it is advisable not to calculate the fee yourself, but to file a fee report under section 31 of the Fee Act, applying the fee exemption and referencing the case law cited above, since it is not yet clear if the Supreme Administrative Court will affirm the fee exemption and which conditions it will impose.
- For hotel lease agreements for which fees have already been paid, case-by-case assessment can establish if there are procedural means to obtain a refund.
