ECJ Backs Austria In Double Tax Dispute With Germany
Wednesday, September 13, 2017
The European Court of Justice has ruled in favor of Austria in its dispute
with Germany relating to the taxation of interest from profit-participation
certificates received by an Austrian bank from a German bank.
The case involved the interpretation and application of Article 11 of the 2000
double tax avoidance treaty between Austria and Germany for the purposes of
the taxation of interest from "Genussscheine" certificates acquired
by UniCredit Bank Austria AG from the Westdeutsche Landesbank Girozentrale Dusseldorf
und Munster, now Landesbank NRW.
Austria argued that, as the member state of residence of the beneficial owner
of the interest paid, it is entitled to tax that income, pursuant to Article
11(1) of the tax treaty. However, Germany also claimed the right to tax that
income, as the member state in which the interest originated, arguing the interest
must be classified as "income from rights or debt-claims with participation
in profits" within the meaning of Article 11(2) of the treaty.
The conflict of interpretation led to double taxation of the interest received
by Bank Austria, which gave rise to the dispute before the Court.
An earlier opinion on the case by an Advocate General, issued on April 27,
2017, came down on the side of the Austrian Government, noting that that the
Austria-Germany tax treaty must be "interpreted to mean that it covers
income which provides a creditor with a part or a share of the debtor's profits,
to the exclusion of income which varies only in the event of losses incurred
by that debtor."
In concurring with the Advocate General's opinion, the full court ruled in
a judgment issued on September 12 that the concept of "debt-claims with
participation in profits" referred to in Article 11(2) of the tax treaty
"must be interpreted as excluding certificates such as those at issue in
the present case."
The court ordered the German Government to pay the costs of the case.