No elimination of double taxation in case of self-inflicted tax payment abroad

Overview

In its decision dated , dated 30 June 2021, Ra 2021/15/0042, the Administrative High Court rejected an appeal that was directed at the elimination of double taxation through a unilateral measure pursuant to Sec 48 Fiscal Code (now Sec 48 para 5 Fiscal Code). By rejecting the appeal, the Administrative High Court made it clear that Sec 48 para 5  Fiscal Code does not serve as a measure for tax remediation if the double taxation was caused by the respective taxpayer. At the same time, the Administrative High Court confirmed its existing legal opinion, according to which a measure within the meaning of Sec 48 Fiscal Code is only permissible if there is "genuine (legal) international double taxation".

Underlying Facts

In 2009, the appellant established a limited company (Ltd.) in the Republic of Malta. The appellant was the sole shareholder of the Ltd. In the period 2010 to 2013, the Ltd. declared income in Malta of between EUR 100,000 and EUR 210,000. These profits were effectively taxed at a rate of 5 %. Since the beginning of 2015, the Ltd. was in liquidation and was eliminated from the Maltese Commercial Register.

After the liquidation of the company, a tax audit was carried out at the sole proprietorship of the appellant in Austria. The tax audit established that the Ltd. could not have provided the services it invoiced due to lack of personal and organizational resources, which is why the income taxed in Malta was attributed to the appellant. The appellant did not appeal against the corresponding income tax assessment. Subsequently, the taxpayer filed an application in the Republic of Malta for a refund of the tax paid. The Maltese tax authorities informed the taxpayer that a refund could no longer be claimed because the Ltd. had already been liquidated. The appellant then applied to the Federal Ministry of Finance for the initiation of a mutual agreement procedure with Malta, which failed, however, as the competent Maltese authority stuck to its position that there was no longer any possibility of reclaiming taxes for a Ltd. that had already been liquidated - irrespective of whether Malta had a right of taxation under the DTT or not.

As a final consequence, the appellant filed an application with the Federal Ministry of Finance for unilateral tax relief according to Sec 48 para 5Fiscal Code. The Federal Ministry of Finance rejected the application on the grounds that, on the one hand, the appellant could have contested the taxation in Austria by filing an appeal and, on the other hand, he could have made use of his right to a refund of the tax in Malta - if he assumed that the taxation there was incorrect, contrary to his original tax payment. The appellant filed an appeal against this in due time, which was submitted to the Tax Appeals Court by the Federal Ministry of Finance without issuing a preliminary decision on the appeal.

Decision of the Tax Appeals Court

The Tax Appeals Court (RV/7105428/2019) dismissed the complaint. In its decision, the Tax Appeals Court stated that the criterion of "tax jurisdiction of several states" was fulfilled, as the same income had been taxed both in Malta for the Ltd. and in Austria in the case of the appellant. According to the  Tax Appeals Court, this criterion is also met if the (double) taxation takes place with different taxpayers.

In the case at hand, however, the Ltd. had not earned any income subject to Maltese tax jurisdiction. Rather, only income personally attributable to the appellant in Austria for the years 2010 to 2013 had been declared in Malta. In addition, measures pursuant to Sec 48 para 5Fiscal Code to balance domestic and foreign taxation had to be "necessary" and not merely "useful". The existence of "necessity" cannot be assumed in the present case, as the appellant himself caused the levying of taxes in Malta through his conduct and made a tax refund impossible by liquidating the Maltese company.

An extraordinary appeal was filed against this decision. Regarding the admissibility of the appeal, it was argued that with regard to the legal requirements for the application of Sec 48 para 5 Fiscal Code, it was questionable whether these could nevertheless be fulfilled if it subsequently turned out that the taxpayer had not earned any income abroad that was subject to tax in this jurisdiction. With regard to the exercise of discretion by the authorities, it was also questionable how Sec 48 para 5 Fiscal Code was to be interpreted and whether the scope of discretion was exceeded if the authorities flatly denied the taxpayer credit with the argument that in cases of tax avoidance, a subsequent rehabilitation through Sec 48 para 5 Fiscal Code could not be expected.

Decision of the Administrative High Court Supreme Administrative Court

First of all, the Administrative High Court) comments on the Tax Appeals Court's view that double taxation which occurs in the case of two different taxpayers can also be covered by the measure of Sec 48 para 5 Fiscal Code. This is in contrast to the existing case law of the Administrative High Court, according to which the admissibility of a relief measure of Sec 48 para 5 Fiscal Code is to be affirmed if a genuine (legal) double taxation exists. However, this issue was not the subject of the submitted appeal.

With regard to the applicability of Sec 48 para 5 BAO, the Administrative High Court explained that the appeal did not succeed in showing that the decision of the Tax Appeals Court was unlawful and unjustified in the area of discretion. According to the case law of the Administrative High Court, the taxpayer claiming preferential treatment has to prove the existence of all circumstances on which the preferential treatment under tax law can be based, without any doubt. In this regard, the Administrative High Court adds that, assuming that the appellant did not appeal against the Austrian income tax assessment due to the lack of prospects, it would in any case have been his task to explain in the proceedings the circumstances - to be taken into account in the exercise of discretion - for which he did not declare the income in Austria from the outset. The appellant failed to do so, although the Federal Ministry of Finance based its decision on the fact that, it had to be taken into account that the appellant had used a tax avoidance scheme that was intended to shift income subject to Austrian taxation sovereignty to an inoperative company in Malta. In addition, the appellant has forfeited the possibility of a refund of corporate income tax in Malta through the liquidation of the Ltd.

The appeal was therefore rejected.

Conclusion

In the present decision, the Administrative High Court confirms its existing case law according to which the admissibility of a relief measure under Sec 48 para 5 Fiscal Code can only be affirmed if there is genuine (legal) double taxation. This is understood to mean a levy of the same/similar taxes from the same taxpayer. In comparison, non-genuine (economic) double taxation covers transactions in which the same object of taxation is taxed by different taxpayers.

Furthermore, the Administrative High Court holds that the procedure under Sec 48 para 5 Fiscal Code does not serve to make up for objections that were omitted in the assessment procedure (in this case, appeal of the assessment notice). The legitimate interest of the party (equity) in avoiding double taxation does not prevail if the public interest in collecting the levy (expediency) prevails (tax avoidance model).