The Austrian Supreme Administrative Court (VwGH) has submitted a preliminary ruling request to the European Court of Justice (ECJ) in September 2023. This legal inquiry pertains to Austria's investment funds legislation and involves a US trust seeking a complete withholding tax (WHT) refund, marking the latest chapter in an enduring legal dispute.
The US Trust in question follows US tax rules that let it reduce its federal tax to zero by sharing more than 90% of its taxable income with investors. Because of this, the foreign WHT cannot be credited in the US.
In 2013 and 2014, this trust got dividends from Austrian companies. Austria lowered the WHT to 15% in accordance with the Austria-US tax treaty, but the appellant subsequently sought a full refund of the remaining WHT based on sec. 21 para. 1 subpara. 1a Austrian CIT law.
However, Austrian tax rules usually see foreign funds as transparent, meaning they're not taxed directly. The tax office thinks WHT refunds should be claimed for each sub-fund. But the US trust disagrees, saying it should get the full refund as one big entity.
In a previous decision, the Supreme Administrative Court referred the case back to the lower Austrian court to determine whether the US trust was entitled to file a WHT refund request. The lower court ruled in favor of the US trust, considering it comparable to an Austrian corporation, which led to the ATA filing a complaint. The Austrian Supreme Administrative Court has now sought ECJ guidance, posing crucial questions regarding the free movement of capital and the comparability of different entities under Austrian and foreign perspectives.
In conclusion, the outcome of this case may have far-reaching implications for the treatment of foreign funds and similar WHT cases. Depending on the ECJ's response, it could pave the way for a significant shift in the handling of WHT on dividends, potentially allowing for full refunds.
According to our experts, the probability of a ruling in favor of the US Trust is moderate to high. Filling the claims would offset the risk of loss in this likely case.
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