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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.