VwGH: Taxation of managing directors working in Russia

Sept 15, 2021 Benn-Ibler Rechtsanwälte

The Austrian Administrative Court of Justice (Verwaltungsgerichtshof, VwGH) has ruled that the taxation of income from employment under the double taxation agreement (Doppelbesteuerungsabkommen, DBA) between Russia and Austria is not exclusively based on the company's registered office, but also on the employee's place of work.

The appellant, an Austrian company, paid remuneration to its managing directors (who did not hold shares in the company). The tax office (Finanzamt, FA) assumed income from employment and held the company liable for wage tax not yet paid.

The appellant countered that the managing directors had performed their activities almost exclusively in Russia during the disputed period, which is why the income would have to be taxed in Russia in accordance with the applicable DBA. The Federal Fiscal Court (Bundesfinanzgericht, BFG) did not uphold the objection and found that all of the managing directors were resident in Austria during the relevant time period, which is why they also had their center of life there and were subject to unlimited tax liability. This was the subject of an extraordinary revision by the company.

The VwGH first referred to its earlier case law on the DBA (Austria - USSR) at the time, according to which, in the case of managing directors of a corporation, the place of work is to be based on the place where the actual work was performed. This does not necessarily have to be at the registered office of the corporation. According to the relevant provisions of the currently applicable DBA, the right of taxation for income from employment is attributed to the country of residence, according to the VwGH. The exception to this is that the work is carried out in another country and the recipient of the remuneration does not reside in the country of residence for more than 183 days - within a period of twelve months.

Thus, the DBA is in principle also based on the place of work of the employee. Accordingly, the VwGH disagreed with the opinion of the BFG, according to which the activity in Russia alone was not sufficient to establish the center of residence. Therefore, the VwGH annulled the BFG's ruling due to the unlawfulness of its content.

Ra 2019/15/0095 (10.05.2021)