BFG confirms: Relief from KESt at source only with timely certificates of residence on the ZS-QU2 form

In its decision dated 24 January 2024 (RV/1100179/2019), the Austrian Federal Financial Court (BFG) confirms the strict view of the Austrian tax authorities that, in order to be granted relief from capital gains tax (KESt) at source based on the applicable double taxation agreement, it is compulsory for the certificate of residence to be submitted using the ZS-QU2 form, and that its date of issuance must be within one year before or after the payment obligation.

Facts of the case of the decision by the BFG

The decision by the BFG was based on the following facts:

• • 50% of the shares in the Austrian A-GmbH are held indirectly by the Albanian B-GmbH.
  • In 2016 and 2018 distributions of dividends to the shareholders were made.
  • For these distributions, A-GmbH reduced the withholding tax rate to 5% based on the DTA Austria-Albania.
  • Answering a request for supplementary information in 2018, among others a separate certificate of residence issued by the Albanian tax authority was submitted to the tax administration.
  • At the time of dividend distribution, there was no certificate of residence using the ZS-QU2 form available from the Albanian authority. The form ZS-QU2 was only obtained and submitted in January 2023 in the course of the BFG proceedings.

Decision of the BFG

According to the BFG, in the case of a dividend distribution to a foreign corporation, only a certificate of residence using the ZS-QU2 form is accepted for the purposes of relief from KESt at source within the scope of a DTA.

The certificate of residence may be issued within a reasonable time period before or after obtaining the capital gains, whereby an issuance within one year before or after the payment obligation is regarded as timely as long as there are no grounds to suspect an unjustified tax relief.

As in the present case, the certificate of residence using the ZS-QU2 form was only issued in 2023, the BFG did not deem it timely. Thus, the criteria for relief from KESt at source were not met. The separately issued certificate of residency from 2018 was not accepted by the BFG.

In conclusion

In principle, the Austrian DTA Relief Ordinance sets out that proof of residence at the time of dividend distribution to a foreign corporation “may, in principle”, for the purposes of a relief from KESt at source, be provided through a certificate of residence using the ZS-QU2 form. Thus the view is taken in literature that proof of the company’s residence may also be provided in a different way, e.g. through a certificate of residence issued using foreign forms.

However, according to the Austrian tax authorities, proof of residence must exclusively (with a few rare exceptions) be provided using the ZS-QU2 form. This view has now been confirmed by the BFG, but without further analysing the detailed wording in the DTA Relief Ordinance.

The BFG also dealt with the criterion of the certificate of residence using the ZS-QU2 form in the context of a second decision (21 December 2023, RV/3100688/2014) on a similar issue. In this case, the court also ruled that, in applying the DTA Relief Ordinance on the relief from withholding tax at source pursuant to section 99 Austrian Income Tax Act (EStG), it is compulsory for the certificate of residence to be issued using the ZS-QU2 form within one year before or after the deduction obligation.

Consequently, according to BFG case law as well as practice by the Austrian tax administration, relief at source without a certificate of residence issued using the ZS-QU2 form (within one year) is not possible, in which case relief must be obtained via a refund procedure. Remedy by a certificate of residence available using a foreign form and/or submission of the certificate of residence using the ZS-QU2 form in a subsequent procedure is not intended to be possible, either.

Currently, at least for the decision dated December 2023, an appeal to the Austrian Supreme Administrative Court (VwGH) is pending. It is expected that, in forming its decision, the VwGH will also deal with the necessity and timeliness of the ZS-QU2 form.

In practice, however, both BFG decisions may have a significant impact.

Based on consultation agreements, however, Austria will accept certificates of residence issued on foreign forms at least for the following countries:

• • Belgium
  • Chile
  • Greece
  • Mexico
  • Portugal
  • Spain
  • Thailand
  • Türkiye
  • USA

We would be happy to assist you if you have any questions regarding tax relief at source and requesting refunds.

Author: Sarah Sellnar