On 26 February 2015, the Austrian Supreme Administrative Court decided in favor of an appeal filed by WOLF THEISS for a client who received tax exempt interest income from other countries.
An Austrian taxpayer received interest from Greek, Brazilian and Argentinian government bonds between 2003 and 2007. According to the applicable double taxation treaties, these interest payments were exempt in Austria. The double taxation treaties provided for an exemption with progression (instead of the usually applicable credit method).
The tax administration and the first instance tax court considered the income tax exempt, but included the interest for the determination of the tax rate (progression).
However, since 2003 sec. 37(8) of the Austrian Income Tax Act has provided that foreign interest income is subject to a final all-in taxation (Endbesteuerung) and may not be considered for the determination of the income tax rate. The first instance tax court argued that this provision was only applicable if the interest was effectively taxed at 25% and was not applicable if the interest was exempt due to a double taxation treaty.
With the support of WOLF THEISS, the taxpayer turned to the Austrian Supreme Administrative Court and argued, among other things, that a double taxation treaty cannot create a taxation right that does not exist under domestic law. The court (VwGH 26 February 2015, 20012/15/0035) followed this argument and decided that foreign interest income may not be considered for the calculation of the total income and the determination of the applicable tax rate since 2003.
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