Austrian Administrative Court: Special Tax Rate for Foreign Bank Derivatives

Sept 2, 2022 Benn-Ibler Rechtsanwälte

The Austrian Administrative Court (Verwaltungsgerichtshof, VwGH) has ruled that income from non-securitised derivatives may be subject to a reduced tax rate even if they are handled through a foreign bank. The previous regulation was in violation of free provision of services. Legislators have recently implemented the ruling's consequences.

In the main proceedings, the appellant obtained income from capital assets arising from non-securitised derivatives (Sec. 27 (4) Income Tax Act 1988, EStG 1988). These were handled by a bank in Denmark. The Austrian tax office assessed the income using a progressive tax rate and did not apply the special tax rate of 27.5% as requested by the appellant pursuant to Sec. 27a (1) item 2 EStG 1988.

In the opinion of the Austrian Administrative Court, this provision violates the freedom to provide services under Art. 56 TFEU (Treaty on the Functioning of the EU), because any unequal tax treatment is not a consequence of the type of income as such, but rather based on the processing by a foreign paying agent. Hence, foreign banks cannot offer preferential taxation to their customers.

With the 2022 Tax Amendment Act, legislators have now remedied this incompatibility with EU law. Section 27a(2)(7) EStG 1988 now refers to Section 95(2)(4) EStG 1988, which provides for preferential tax treatment of comparable foreign paying agents. However, they must have a domestic tax representative and, furthermore, this benefit is limited to countries with comprehensive mutual administrative assistance.

VwGH Ro 2019/15/0184-7 (08.03.2022)