New tax treaties for the avoidance of double taxation between Austria and Lithuania, Mexico, Moldova, Poland and San Marino entered into force on January 1 2006; the tax treaty with Switzerland shall be amended with effect as of the same date.
Generally, all new treaties are based on the OECD model convention and on the OECD commentary thereon. Following its traditional treaty policy, Austria, in general, applies the exemption method. The partner states, on the contrary, generally apply the credit method (Poland, which used the exemption method under the former treaty, now applies the credit method just as Lithuania, Mexico, Moldova do; under the San Marino treaty both contracting states apply the exemption method in cases of substantive active business operations).
The new tax treaties provide for a general reduction of withholding tax on dividends to 15% (Mexico: 10%) and a further reduction to 5% (San Marino: 0%) in case of qualified participations. Taxation rights of the source state on interest as well as on royalties are, in general, limited to 10% under the treaty with Lithuania and Mexico, to 5% under the treaty with Moldova and Poland 5%, and to 0% under the San Marino treaty.
Capital gains from the sale of shares are taxable in the state of residency. Under the treaty with Mexico, however, 20% of the gains from the sale of shares may be taxed in the state where the company is resident. Furthermore, with regard to capital gains from shares in a company holding mainly real property all new treaties, except for the Moldova treaty, provide for taxation in the source state.
The amendment of the tax treaty between Austria and Switzerland provides, among other things, for an elimination of withholding tax on royalties. Furthermore, the treaty provision governing capital gains from shares after a shareholder's transfer of residence is adapted to Austria's exit tax regime which provides for a deferred taxation of the capital gain inherent in the shares upon transfer of residence. In addition, the provisions on exchange of information and mutual assistance are extended to enforcement of domestic tax law as far as holding companies and tax fraud cases are concerned.
Relief at source
Since July 1 2005 new relief at source rules for payments to non-residents are in force (DBA-Entlastungsverordnung). The new rules clarify, with effect for all tax treaties concluded by Austria, under which conditions treaty relief from Austrian withholding tax may be granted already by the payor at source rather than by way of a mandatory refund procedure. In general, evidence of eligibility for treaty benefits must be shown to the payor by a certificate of residence of the payee (using the required form available at the homepage of the Ministry of Finance, www.bmf.gv.at/service/formulare). If the payments do not exceed €10,000 ($12,000) per calendar year and the recipient has no domicile in Austria, the payee may show evidence of his eligibility for treaty benefits by his own written confirmation rather than by a formal certificate of residence. Corporations also have to confirm that they carry out an active business and have employees as well as their own business premises. In case of transparent partnerships, information on the partners must be provided; for partners with a share of more than €10,000 per year in the Austrian source income, a certificate of residence is required.
No relief at source may be granted if the documentation requirements are not met or if there are reasons to believe that the payee is not the beneficial owner of the payments. Furthermore, no relief at source is available if the payee is a dual resident corporation or a foreign foundation, trust or investment fund, if the payments relate to the leasing of personnel (except for intra-group leasing of white collar employees) or if payments are made by banks in their capacity as depositary of bonds. In all such cases payees eligible for treaty benefits have to claim a refund of Austrian withholding tax. The refund procedure is centralized at the tax office in Eisenstadt. The application forms may be obtained from the homepage of the Austrian Ministry of Finance.
Clemens Hasenauer (clemens.hasenauer@chsh.at), and Johannes Prinz (johannes.prinz@chsh.at), Vienna
