02/05/17

ECJ Rules In Austria's Favor In Tax Dispute With Germany

The European Court of Justice (ECJ) 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, reports Tax News.

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.

In ruling in favor of Austria, the ECJ said in a judgment issued on April 27 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."