08.01.2025
Austria: No claim for unilateral relief to fix failed tax structures
Key Facts
A recent fiscal court decision in Austria discussed the need for unilateral relief from double taxation provided under Austrian law in the case of failed tax structuring involving trusts and private foundations under the laws of Liechtenstein.
The plaintiff, an Austrian individual, tried to seek unilateral relief, granted under Austrian law for cases of unreasonable double taxation and where neither a treaty nor any other measure provides for relief.
The Austrian Fiscal Court clearly emphasized that taxpayers who deliberately engage in a complex and risky tax avoidance scheme and intentionally withhold relevant information from the tax authorities can hardly invoke that the cause for the resulting double taxation was unreasonable.
Liechtenstein is certainly famous for being a little beauty in the middle of the Alps, but it is also known for its favorable tax rates. It is therefore not surprising that Liechtenstein has always had a strong attraction for international tax planning, particularly for individuals from neighboring countries, including Austria. In the past, many wealthy Austrian individuals have sought to engage in tax planning structures by using vehicles created under Liechtenstein law to benefit from significantly lower taxation.
However, even between closely related legal cultures such as those of Liechtenstein and Austria, conflicts of qualification arise that can turn a supposedly lucrative tax planning model into a fatal tax grave. This was the case in a recent decision by the Austrian Fiscal Court: the plaintiff, a retired Austrian citizen, received substantial investment income from a trust and a private foundation, both established under Liechtenstein law for the purpose of optimizing income taxation.
While Liechtenstein treated the trust as a tax transparent entity and the private foundation as a corporate taxpayer, Austrian law qualified both entities in reverse. The plaintiff tried to argue she had become a resident of Liechtenstein, but at the same time intentionally held back relevant information from Austrian fiscal authorities. In the end, however, the plaintiff failed to provide sufficient evidence for her relocation from Austria to Liechtenstein.
Although a mutual agreement procedure (MAP) was initiated under Article 25 of the double taxation convention (DTC) Austria-Liechtenstein, the competent authorities were unable to agree. As a consequence, the plaintiff's income remained subject to economic double taxation as Liechtenstein and Austria taxed the same income at the level of different taxpayers, the plaintiff and the trust as well as the private foundation, respectively.
Since the DTC Austria-Liechtenstein does not provide for relief from economic double taxation, there was nothing to relieve the applicant of the double taxation of her income. However, as a last resort, Austrian law allows for unilateral relief at the discretion of the tax authorities if the double taxation is unreasonable and contrary to the purpose of the law and could not have been avoided in any other way. The plaintiff therefore attempted to apply for such unilateral relief, which was refused by the Austrian authorities.
The complaint was soon dismissed by the Austrian Fiscal Court: Anyone who deliberately engages in a complex and risky tax avoidance scheme and deliberately withholds relevant information from the tax authorities can hardly invoke that the cause for the resulting double taxation was unreasonable!
Before engaging in cross-border structures for your business activities, it is crucial to seek professional tax law advice. As experts in international tax law, we regularly handle such cases and can guide you on the possibilities and limitations of utilizing foreign companies and regimes. Please do not hesitate to contact us.
Source: ICON
For further information please visit the following link: ICON - DOPPELBESTEUERUNG | Kein § 48 BAO bei gescheiterter Steuerplanung!
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