Austria: Refund of withholding tax allowed Canadian pension fund; possible refund opportunities for non-EU entities

Austria: Refund of withholding tax allowed

The Supreme Administrative Court (VwGH) denied an appeal filed by the tax authorities against a lower court judgment allowing a withholding tax refund to a Canadian pension fund, and therefore granted a full refund of the withholding tax on dividends paid to the Canadian pension fund.

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The case identifying information is: VwGH 11.09.2020, Ra 2020/13/0006-10

Under Canadian law, no tax was payable on the investment income of the Canadian corporation (whose share capital was wholly owned by the federal government of Canada). This tax-exempt income included non-Canadian EU-source dividend income (that is, those investments relating to the Canadian pension scheme system).

The Austrian tax authorities denied the pension fund’s claim for refund of withholding tax on the basis that “third-country claimants” (non-EU claimants) were not entitled to a refund of withholding tax pursuant to provisions of Austrian tax law.

A lower court (BFG) in Austria found for the Canadian pension fund. The lower court noted the Austrian legislation constituted an unjustified restriction to the free movement of capital, and that the derogation from the prohibition on restrictions to the free movement of capital with non-EU countries (referred to as the “standstill clause”) was not applicable.

The Supreme Administrative Court denied the request for appeal by the tax authorities, and thus cleared the way for a full refund of the withholding tax.

KPMG observation

The action by Austria’s highest court not to allow the appeal is being viewed as a milestone for future claims for refund of withholding tax on Austrian dividends paid to companies located in third (non-EU) countries.
 

Read an October 2020 report prepared by the KPMG member firm in Austria

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