Österreichische Volksbanken-Aktiengesellschaft ... - Volksbank AG

only if the Original Issue Discount exceeds certain thresholds (Disagiostaffel); in such case, the
Note qualifies as a financial innovation under German tax law.
If the Note qualifies as a financial innovation (Finanzinnovation) (including, among other
things, zero coupon notes or other discounted Notes or Notes with accrued interest added as
well as index linked notes with a capital guarantee etc.), and is disposed of while outstanding or
redeemed at maturity, such portion of the proceeds from the disposition of the Note or of the
redemption amount of the Note which equals the yield to maturity of the Note attributable to the
period over which the holder has held such Note, minus interest, including Accrued Interest,
already taken into account, will be subject to income tax (plus solidarity surcharge), provided
the holder of the Note is an individual. The yield to maturity is determined by taking into account
the Original Issue Discount. If the Notes do not have a predetermined yield to maturity
(Emissionsrendite) (e.g. in the case of index linked notes with a capital guarantee), the difference
between the proceeds from the disposition, assignment or redemption and the issue or purchase
price of the Note (market yield) is subject to income tax (plus solidarity surcharge) in the
year of the disposition, assignment, or redemption of the Note. In its recent jurisdiction the Federal
Tax Court considers yield to maturity as predominant determination criterion for the taxable
profits from financial innovations even if the yield to maturity has not been proved by the Noteholder.
Where the Note is issued in a currency other than euro, such difference will be computed in the
foreign currency. Where a Note forms part of the property of a German trade or business and is
recognized in a balance sheet, in each fiscal year the yield to maturity of the Note to the extent
attributable to such period has to be taken into account as interest income by the initial subscriber
of the Note and is subject to personal or corporate income tax (plus solidarity surcharge)
and trade tax.
Capital gains from the disposition of Notes, other than income described in the preceding paragraph
(especially with Notes neither granting a certain interest distribution nor a certain redemption
amount, i.e. the redemption may theoretically amounting at zero), are only taxable to a
German tax-resident individual if the Notes are disposed of within one year after their acquisition
or form part of the property of a German trade or business. In the latter case, the capital
gains may also be subject to trade tax.
Capital gains derived by German-resident corporate holders of Notes will be subject to corporate
income tax (plus solidarity surcharge) and trade tax, even if the Notes do not qualify as
financial innovations.
Under certain circumstances a German investor holding the Notes as business assets in his balance
sheet might be obliged to split special kinds of Notes (e.g. reverse convertibles) into several
asset parts reflecting several risk exposures. For German accounting purposes a bifurcation
of combined products is justifiable if the derivative element in the product is subject to a special
risk other than only the interest risk or the capital of the investor is exposed by additional risks
than the shortfall risk of the counterparty. It is questionable but not ruled out that such a bifurcation
would also be relevant for German tax purposes.
If the Notes are held in a custodial account which the Noteholder maintains with a German
branch of a German or non-German bank or financial services institution (the "Disbursing
Agent"), a 30 per cent. withholding tax on interest payments (Zinsabschlag), plus 5.5 per cent.
solidarity surcharge thereon, will be levied, resulting in a total tax charge of 31.65 per cent. of
the gross interest payment. Withholding tax is also imposed on Accrued Interest. If the Notes
qualify as financial innovations, as explained above, withholding tax at the aforementioned rate
will also be withheld from the difference between the proceeds from the disposition, assignment
or redemption and the issue or purchase price of the Notes, if the Note has been kept in a custodial
account with such Disbursing Agent, since the time of issuance or acquisition, respectively.
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