Austria counters Russia’s suspension of the double taxation agreement by suspending the agreement as well
After Russia unilaterally suspended the application of major parts of the provisions of the double taxation agreement (DTA) with Austria in August 2023, Austria has now suspended parts of the DTA as well. This has further implications for Austrian taxpayers.
Background
By decree dated 8 August 2023, Russia suspended the application of provisions from more than 30 DTAs, one of which the DTA Austria-Russia. Russia justified this step as response to Western sanctions (such as the EU adding Russia to its “blacklist”). The suspension affected major parts of the DTA such as e.g. the definition of permanent establishments, allocation rules, administrative assistance regarding enforcement of taxes and limitation of tax benefits (see also our newsletter dated 16 August 2023).
What is new?
By publication in the Austrian Federal Law Gazette (BGBl) dated 6 December 2023 (in German only) Austria has suspended parts of the DTA Austria-Russia as well. This means that Austria – for the time being – will not apply all these provisions of the DTA whose application Russia has already suspended.
Among others, Austria will take the following measures:
- Austria will no longer apply the reduced withholding tax for dividends as defined by the agreement
- No prevention of double taxation of interest and royalties
- Possible double taxation of wages and salaries of employees who perform their work at least partly in Austria
- No administrative assistance with the enforcement of tax claims
Especially the provisions regarding residence (Article 4) and the mutual agreement procedure (Article 25) will be further applied by Russia and Austria. The suspension does also not comprise the provisions on the exchange of information (Article 26), even though they were unilaterally suspended by Austria in March 2022 (with reference to the application of the Ordre Public principle based on the DTA and the multilateral agreement on mutual administrative assistance in tax matters).
According to information of the Austrian Ministry of Finance (BMF) dated 6 December 2023 (reference number 2023-0.865.584) (in German only), comprehensive administrative assistance with Russia is still assumed despite the suspension. According to the BMF, a mere suspension of the DTA – as opposed to a termination – is not detrimental for comprehensive administrative assistance since the provisions of the agreement are still in force. (see information by the BMF dated 6 December 2023 (reference number 2023-0.863.890) (in German only). You may find more details regarding the effects of the comprehensive administrative assistance ceasing to apply on national law in our newsletter dated 16 August 2023.
Outlook
Taking effect as of 6 December 2023 (publication BGBl) regarding income also Austria ceases to apply major parts of the DTA Austria-Russia. It is still unclear whether Russia plans to completely terminate the DTA. Therefore, we recommend all affected taxpayers to assess the impact which these developments will have on their structures and transactions and, if necessary, take corresponding adjustment or relief measures (e.g. based on section 48 BAO (Austrian Federal Fiscal Code)). We are happy to support you with this matter.
For further information regarding the suspension see publication by the BMF dated 6 December 2023 (reference number 2023-0.867.389) (in German only).
Author: Sophie Schönhart
