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Tax Treaties: United States And Austria



Tax Treaties: United States And Austria

Quick Summary.  Austria is a member country of the European Union (EU).  Its economy is primarily driven by the services industry, which accounts for approximately 75% of its labor force. Austria is comprised of nine states and its capital, Vienna, and is bordered by Italy, Switzerland, Germany, Czechia, Slovakia, Hungary, and Slovenia.

Under the Tax Amendment Act 2020, Austria implemented the Digital Tax Act (‘Digitalsteuergesetz’).  In addition, pursuant to the Reform Act 2020 (‘Steuerreformgesetz 2020’), Austria implemented changes to its Value-added tax (VAT), an exit tax, controlled foreign company (CFC) provisions, and affiliate-deduction rules.

The European Union (EU) Tax Dispute Resolution Act (‘EU-Besteuerungsstreitbeilegungsgesetz’ or EU-BStbG) became effective in September of 2019.

Resident corporations are subject to corporate income tax (Körperschaftsteuer) on worldwide income; non-Austrian resident companies are subject to Austrian-source income.

Resident individual are subject to tax on their worldwide income; non-residents are subject to tax on certain Austrian-source income.  Individuals are generally classified as a resident after establishing an abode or 6 months of physical presence.

Treaty.  Convention Between the United States of America and the Republic of Austria for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income, signed at Vienna May 31, 1996

Currency.  Euro (EUR).

Common Legal Entities.  Stock corporations (AG), public/private limited liability company (GmbH), partnership, sole proprietorship, and branch.

Tax Authorities. Revenue offices of the Austrian Ministry of Finance.

Tax Treaties.  Austria is a party to over 90 tax treaties.  Austria is also a signatory to the OECD MLI, which entered into force on July 1, 2018.

Corporate Income Tax Rate.  25%.

Individual Tax Rate.  0% to 55% (depending on income).

Corporate Capital Gains Tax Rate. 0% / 25%.

Individual Capital Gains Tax Rate.  27.5% on investments and 30% on gains from real estate.

Residence.  A corporation is a resident if it is incorporated in Austria or managed and controlled in Austria.  An individual is a resident if he or she is domiciled or has a habitual abode in Austria.  For these purposes, a habitual abode is assumed if the individual stays in Austria for more than 6 months.

Withholding Tax

Dividends.  0% / 25% (company residents) / 27.5% (individual residents) / 0% / 27.5% (company nonresidents) / 27.5% (individual nonresidents). 

Interest. 0% / 25% (company residents) / 27.5% (individual residents) / 0 % / 25% / 27.5% (company nonresidents) / 27.5% (individual nonresidents). 

Royalties. 0% (company and individual residents) / 20% (company and individual nonresidents).

Transfer Pricing.  Generally follows arm’s length standard based on OECD guidelines.

CFC Rules. CFC rules generally attribute low-taxed passive types of income of a CFC to its Austrian parent company.  For these purposes, control exists if an Austrian company owns directly or indirectly more than 50% of the shares or voting rights or is entitled to more than 50% of the profits.  The CFC rules apply if passive types of income exceed 1/3 of the CFC’s annual income but do not apply if the CFC carries out economic activity supported by staff, equipment, assets, and premises.

Hybrid Treatment.  Certain expenses may be disallowed or inclusion of income may be required if expenses are deducted in one state and there is no taxation of the corresponding revenue in the other state or where expenses can be deducted in more than one state. 

Inheritance/estate tax. No inheritance tax.  However, there is a statutory notification requirement for gifts, and gifts of real estate for no consideration may be subject to a transfer tax.


Anti-Treaty-Shopping and Anti-Abuse Provisions

The Convention Between the United States of America and the Republic of Austria includes a comprehensive anti-treaty-shopping provision, resembling the provisions in the then-existing U.S. model treaty. The Convention also includes an anti-abuse rule covering certain “triangular cases,” which involve payments from the United States to a branch of an Austrian company located in a third country. Under this rule, the United States generally may tax, in accordance with its internal law, interest and royalties paid to a low-taxed third-country branch of an Austrian company.

Withholding

The Convention expanded the class of royalty payments that are subject to a source-country tax, despite the fact that the preferred U.S. treaty position is the elimination of source-country taxation of royalty income.

OECD Interpretative Rules

The OECD Commentary applies in interpreting any provision of the Convention that corresponds to a provision of the OECD model treaty. However, this rule is not applicable where either the United States or Austria has entered a reservation, or has included an observation, with respect to the OECD model treaty or its Commentary. In addition, this rule generally does not apply where a contrary interpretation is included in the Memorandum of Understanding with respect to the proposed treaty or in a published interpretation of the proposed treaty (e.g., the Treasury Department’s Technical Explanation ).

Exchange of Information

Information generally may be exchanged to carry out the purposes of the Convention or to carry out the domestic laws of the countries concerning taxes covered by the Convention’s information exchange article. Certain provisions under Austrian law, at the time of the entry of the Convention, prohibited Austria from obtaining information from Austrian banks in non-penal investigations; however, bank information could be obtained for penal investigations. Accordingly, under the Convention, bank information can be provided by Austria in connection with U.S. penal investigations, including the commencement of a criminal investigation by the Internal Revenue Service.

Have a question? Contact Jason Freeman, Freeman Law.

Jason Freeman

Mr. Freeman is the founding and managing member of Freeman Law, PLLC. He is a dual-credentialed attorney-CPA, author, law professor, and trial attorney. Mr. Freeman has been recognized multiple times by D Magazine, a D Magazine Partner service, as one of the Best Lawyers in Dallas, and as a Super Lawyer by Super Lawyers, a Thomson Reuters service.
He was honored by the American Bar Association, receiving its “On the Rise – Top 40 Young Lawyers” in America award, and recognized as a Top 100 Up-And-Coming Attorney in Texas. He was also named the “Leading Tax Controversy Litigation Attorney of the Year” for the State of Texas” by AI.

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