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New Austrian Rules for Tax Relief Eligibility following Unprecedented Administrative Court Decision: Impact on Financial Intermediaries and Shareholders

New Austrian Rules for Tax Relief Eligibility following Unprecedented Administrative Court Decision: Impact on Financial Intermediaries and Shareholders

Jan 23, 2023

Following the Austrian Supreme Administrative Court “Verwaltungsgerichtshof – (VwGH)” decision on 28 June 2022 (Ro 2022/13/0002) concerning short-term Cum-Ex-Trades and withholding tax refunds, the Austrian Ministry of Finance (MoF) published a new information letter on the 15 November 2022 with regards to the attribution of dividends for income and tax relief eligibility purposes.

The newly published guidelines replace the previous guidelines, published in 2014, regarding the eligibility to dividends and withholding tax relief entitlement for non-resident shareholders.

In accordance with established stock exchange practice, shares are traded with dividend rights (cum-dividend) up until a specific key date, known as ex-date. Shares traded on or after this date no longer transfer rights to an upcoming dividend (ex-dividend trading). The ex-date is typically established as one business day prior to the record date, which is the date on which an issuing company’s books and records are reviewed to determine the shareholders entitled to receive a dividend distribution on the upcoming pay date of an income event. Generally speaking, dividends are paid to shareholders for traded shares that have definitively settled in a shareholder’s securities account prior to or on record date.

Historically tax relief entitlement on Austrian dividend payments has required that the shares be deposited and definitively settled in the shareholder’s securities account on the day before the ex-date. In an unexpected turn of events the VwGH, in its decision, diverged from common market practice and determined instead that the decisive factor for the attribution of the dividend for tax relief purposes is the identity of the beneficial owner of the shares at the time of the profit distribution resolution, better known as the Annual General Meeting (“AGM”).

Consequently, the newly published information letter determines that for a non-resident shareholder of an Austrian stock-listed corporation to be entitled to a withholding tax (WHT) refund or an exemption at source, the acquired shares must have been deposited and definitively settled in the claimant’s securities account one day prior to the AGM. The key date is therefore AGM -1 to determine tax relief eligibility on Austrian shares. Should the acquired shares not have been deposited with definitive settlement in the shareholder’s securities account at the close of business on the last trading day prior to the AGM date, the new guidelines infer it is the seller of the shares that remains the entitled beneficial owner and eligible to tax relief.

The updated guidelines in assessing tax reclaim entitlement, being AGM-1 as opposed to prior to ex-date -1 applies to all open, refunded and future reclaim applications. The change in approach may have significant implications for shareholders and the investment tax yield on Austrian dividends.

Implication for Previously Refunded Reclaims Applications:

In accordance with Austrian tax laws, should shareholders have received a WHT refund on Austrian dividend payments in accordance with the previous eligibility rules, it is the Austrian Tax Authorities’ (ATA) discretion to cancel and request a remittance of said refund within a one-year period (section 299 para 1 Federal Fiscal Code (BAO)) as of the date of delivery of the refund notification issued by the ATA, in light of the recent case law and VwGH guidelines.

In all other cases, an annulment of previous WHT refunds that have already been legally concluded is only possible where the requirements for reopening a claim (section 303 para 1 b Federal Fiscal Code (BAO)) are met. This would be the case where the competent tax authority, at the time of issuing the reopening notice, had no knowledge of whether the applicant was the entitled beneficial owner of the shares on AGM-1 and thus the subject of the dividend payment and the debtor of the WHT refunded.

Implication for Pending and Unfiled Refund Applications:

As part of the refund application, taxpayers will have to provide proof that the securities in question were deposited to and settled in their account by close of business on AGM-1 date by means of corresponding custody account statements (showing all share movements). The ATA reserves the right to verify the authenticity of the documents and/or request further supporting documentation. The Austrian MoF states in its information letter that it is not detrimental to the entitlement to WHT reimbursement if the receipt of the dividend cannot be proven in cases where the shares have already been sold after the AGM.

The Austrian MoF concedes that, if in exceptional cases, due to problems with the technical processing of the deposit of shares, a situation arises after which neither the seller nor the acquirer can obtain a refund, evidence of the existence of beneficial ownership, including documentation concerning the technical processing difficulties, is admissible in individual cases.

Given that the AGM date has not historically been a key date with regard to dividend payments and tax relief entitlements, this change in criteria brings forth a significant administrative burden on financial intermediaries. Financial intermediaries will need to adapt their automated systems to incorporate coding for this deviation from previous market practice and ensure that the reconciliation of dividend entitlement positions is done to take into account the potential changes in the number of shares in the securities account that can occur between AGM-1 and the ex-date- 1.

Maximize Your Dividend Returns: WTax’s Expert Assistance for Navigating the New Austrian Income Tax Attribution Rules:

Our expert team can help you navigate the new Austrian income and tax relief eligibility rules and assess their impact on your reclaim accrual and previous refunds. Get in touch so that we can assist with the filing of reclaims in the Austrian market.