Document the open proceeding first.
If a tax-relevant proceeding is pending, retention may be required beyond the basic period. Record the proceeding, affected years, contact persons and complete data access in the handover file.
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Tax record-keeping in a gratuitous business transfer: preserving legacy records
Mag. Bernhard Brandauer, Rechtsanwalt
A gratuitous business transfer must preserve books, receipts and tax-relevant legacy records. Section 132 BAO sets the framework for retention and access.
In a gratuitous business transfer, the way tax records are stored determines whether the business can still answer questions years later. Books, records, receipts and other documents relevant to taxation must remain complete, readable and available for an audit or a request from the tax authority. Section 132 BAO provides the central framework.
Retention is a separate transfer task. It follows from the duty to keep books and records and sits alongside the question of which tax rights and obligations pass to a successor. The transfer of business and succession topic provides the wider structure for the handover.
This article explains the seven-year basic period, how the period starts, what digital retention requires and how responsibility should be organised during the transition. The related article on compensation clauses that do not endanger the business addresses a separate financial issue that may arise in a family transfer. The concrete allocation should be agreed with legal and tax advisers before completion.
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Inventory the records before completion.
Create a list for each tax year covering books, records, receipts, annual accounts and digital data. Missing years and unresolved access questions belong before the transfer decision.
Record the transferor’s custodial role in writing.
If the transferor keeps the records, the agreement or an annex should set out location, access, delivery, contact person and the period of custody. The successor must remain able to respond to business and tax questions.
Organise shared access clearly.
For each record set, specify who stores it, who may access it and how files, passwords, software and paper originals are handed over. A clear handover file prevents later gaps.
Evidence digital readability.
Document file formats, storage location, search and export options, software and backups. The data must remain readable and available throughout the retention period.
Close digital gaps before completion.
Missing software, formats or links can undermine traceability. Secure the data in a readable format and test reproduction with the required tools.
Match paper originals to digital copies.
Link paper originals to the digital filing system and record where the authoritative version is stored. This keeps clear which record should be used for a later query.
What section 132 BAO requires for books, receipts and legacy records
Section 132(1) BAO applies to persons who were required by tax rules to keep books or records. It covers the books and records themselves and the related receipts. The provision also addresses business papers and other documents relevant to determining tax. The handover file should therefore show the full tax-relevant record set, rather than only the latest annual accounts.
The basic retention period is seven years. For books, records, receipts and business papers, the period runs from the end of the calendar year to which the document relates. It is generally linked to the accounting or tax year, not to the day on which the business is transferred. A transfer during the year does not create one new common deadline for every older record.
Each year should be recorded separately with a concrete retention end date. In a gratuitous transfer, the parties should also state where the records are stored and how the successor can access older accounting years. An internal allocation of custody does not shorten the statutory period.
Who should secure the legacy records after the business transfer
The transfer of a business and the retention of tax records are connected, but they are not the same legal question. Section 132 BAO links retention to the duty to keep books and records. The transfer agreement should connect that legal starting point with practical custody: who holds the originals, who manages the digital filing system and who answers questions about each year?
A workable arrangement contains a record list with year, document type, storage location and responsible person. Paper records require a room, filing structure and access rule. Digital records require the storage location, formats, software, permissions and a tested backup. The successor needs access to the material required for current returns, audits and continued operation.
If the transferor keeps the records, the agreement should regulate delivery on request, response time, preparation costs and the end of custody. If the successor takes over, the parties should record completeness in a handover confirmation. A protocol that leaves years unresolved should be clarified before signing.
How to calculate the seven-year retention period
For an accounting year ending in 2024, the basic period under section 132 BAO runs until 31 December 2031. The relevant point is the end of the calendar year to which the record relates. This remains so if the business was transferred earlier or if the successor only later moves the records into a new filing system.
The year list should include the accounting or tax year, document category, start of the period, ordinary end date and any special reason to keep the records longer. Receipts relating to several years or transactions should be classified so their tax relevance remains traceable. Destruction should only be considered after checking pending proceedings and other statutory reasons.
Take particular care with records relevant to a pending proceeding. The seven-year basic period is then not a safe deletion date. An audit, an appeal, an open assessment or another exchange with the authority may require the records to be kept longer. These records belong on a separate hold list.
When a pending tax proceeding requires longer retention
Section 132(1) BAO requires longer retention where records matter for a pending proceeding. The extension applies for as long as the records are needed for the assessment of tax or for the specific proceeding. It concerns the records that are materially relevant, not automatically every record of the business.
Before completion, clarify whether an audit, appeal, inspection, open return or other authority query concerns a particular year. The list should state file references, periods, contact persons and the latest known status. The successor must know who will collect records and communicate with the tax authority.
Update the hold list after each important procedural step. Deletion becomes a possibility only when the proceeding no longer requires the records and the ordinary period has also expired. Where the position is unclear, keep the records and verify the proceeding status.
What digital retention requires
Sections 132(2) and (3) BAO permit retention on data carriers if a complete, orderly and faithful reproduction is guaranteed at any time until the statutory period expires. Digital filing must preserve the content of the original record in a traceable way. A folder of PDF files without classification, searchability or backup is not a reliable handover solution.
For electronic books and records, the successor needs access to the data and to the tools required for reading them. Depending on the system, these may include software, export functions, permissions, encryption keys and documentation of the filing structure. Use samples to show that bookings, receipts and links can be found and displayed.
Document every technical migration. If data moves from an old system to a new one, the handover file should contain the export, import, checksum or another traceable reconciliation and error handling. Keep a separate backup and test whether it can be restored.
What the transfer agreement should record
The transfer agreement should address tax legacy records as a separate handover item. A general clause stating that all records pass with the business usually leaves later access and custody questions open. An annex that describes the record set and responsibilities by year is more useful.
The annex should state the storage location of paper originals, the digital filing system, access rights, backups, delivery on request and the contact person for an audit. Add the retention list and a hold list for pending proceedings. If the transferor keeps the records, agree costs, response time and what happens if custody later ends.
Complete the handover with confirmation of actual data access. The successor should test a representative year, open digital files, match receipts and verify restoration from the backup. This protocol records the condition of the records on the transfer date.
Common errors when handling tax legacy records
A frequent error is keeping the latest annual accounts without the receipts, ledgers and supporting records that make the figures traceable. A filing structure that distributes records by person rather than by year and document type creates a similar problem. The tax-relevant transactions must remain understandable.
Deleting records after seven years without checking pending proceedings is risky. Another gap arises when a successor receives a backup but no software, key or description of the filing structure. A backup that has never been restored does not prove availability.
Before the transfer, create the year list, test a sample of the records and place every open proceeding on hold. The related article on severance pay and occupational pensions in a business transfer illustrates why individual transition issues need separate documentation. The record list should also be reconciled with the annual accounts and succession cut-off.
Questions about retention in a business transfer
Does the seven-year period start on the day of the business transfer?
No. For books, records, receipts and business papers, section 132 BAO generally links the period to the end of the calendar year to which the document relates. The transfer does not create one new period for every year.
May records be destroyed immediately after seven years?
The basic period is a starting point only after pending tax-relevant proceedings have been checked. If records matter for a pending proceeding, they may have to be retained longer.
Must the transferor keep the original papers after completion?
That depends on the legal starting point and the agreed custody arrangement. The transfer agreement should state where originals and digital records are kept, who has access and how records will be produced for an audit.
Is a collection of PDF files sufficient digital retention?
It is sufficient only if complete, orderly and faithful reproduction is secured and the records remain readable for the full period. Filing structure, searchability, software and backups must be transferred and tested.
What belongs in the legacy-record handover file?
Useful elements are a year and document list, retention dates, storage locations, access rights, backups, pending proceedings, contact persons and a protocol confirming tested access.
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