WITHHOLDING TAXES AND THE FUNDAMENTAL FREEDOMS Karin Simader EATLP Congress, Lisbon 1 June, 2013

Table of Contents Introduction Different Treatment based on Withholding Taxes The Fundamental Freedoms under the TFEU and EU Agreements Comparability Analysis Justifications Proportionality Conclusions: The Admissibility of Withholding Taxes

Taxpayers subject to WHT A is a resident of State X. He earns income in State Y. The taxes are collected by withholding by the payment debtor. State Y taxes income earned by resident taxpayers by assessment. X Y Y 100 100 - 20 - 20

Findings I Cash-flow disadvantages Fundamental Freedoms of the TFEU, EEA Agreement, Agreements with Switzerland, Association and Partnership Agreements Different situations with regard to the recovery of taxes (Truck Center)? Justifications Compensatory advantages Effective collection of taxes Prevention of tax avoidance Proportionality: recovery assistance (X.)

Income subject to WHT A receives interest income. Taxpayers resident in State X who earn income in State Y from a perma- nent establishment are taxed by assessment. X Y X Y 100 - 20 100 - 20

Findings II Horizontal comparability? Permanent establishment enables direct supervision and recovery of taxes Outcome if withholding taxes also for residents Variation: Comparable situations are treated differently, e.g. different professions Impossibility of justification? Going beyond what is necessary?

WHT in the absence of a tax liability The interest income received by A is exempt from taxation in State Y under the tax treaty between State X and State Y. A claims an exemption from the withholding tax. X Y Y 100 100 - 20 - 20 + 20

Findings III Different treatment Temporary over-taxation, need for refund procedure But: No tax treaty exemption for residents Comparability with regard to tax exemptions, directly linked expenses Justifications: Effective collection of taxes? Proportionality Taxpayer participation vs. certificates beforehand or at a later stage (exchange of information), 3rd countries! Liability of the payment debtor vs. recovery assistance Payment debtor: choice or obligation?

Further issues treated 1. Tax collection method 1.1. The income recipient’s perspective 1.1.1. Taxpayers subject to withholding taxes 1.1.2. Income subject to withholding taxes 1.1.3. Withholding taxes in the absence of a tax liability 1.2. The payment debtor’s perspective 1.2.1. The withholding obligation 1.2.2. The liability for the tax payment 1.2.3. Assessment of the withholding obligation 2. Tax amount 2.1. (Non-)Taxation 2.2. Taxable base 2.3. Tax rate

Contact Dr. Karin Simader, LL.B.   TJP Austroexpert Steuerberatungsgesellschaft m.b.H. Austrian tax firm of the year 2011 and 2012 (Aquisition International Legal Awards) European Newcomer 2013 (ITR European Tax Awards) Telefon/Telephone: +43 1 890 30 32 DW / Ext 222 Mobil/Mobile: +43 664 883 85 397 karin.simader@tjp.at www.tjp.at