Cum-Ex-Trades and withholding tax refund

On 28 June 2022, the Supreme Administrative Court (Verwaltungsgerichtshof or VwGH) issued its decision on the attribution of dividends for income tax purposes in case of short-term trades (VwGH 28 June 2022, Ro 2022/13/0002). Some weeks later, the Austrian Ministry of Finance has released a draft information letter implementing the Court decision. Once approved, the new tax authorities practice shall apply to withholding tax refunds whether future or still pending, including withholding tax refunds to investment funds on the basis of the ECJ case law.

Court decision

In the underlying case, a non-Austrian corporation, which is a tax resident in Dubai, made over-the-counter purchase and sale transactions in Austrian shares. The shares were purchased after the date of the dividend resolution (record date), but prior to the date, starting from which the shares traded ex dividend (ex-date). Thus, the shares were purchased cum dividend and sold shortly after the ex-date. Based on the tax treaty between Austria and the UAE, which provides for a zero withholding tax rate on Austrian dividends, the Dubai company lodged withholding tax claims with the Austrian tax authorities. The tax office in charge however rejected the claims arguing that the shares were delivered into the custody after the ex-date and thus, too late. For this reason, the claimant was not considered as having economic ownership in respect of shares on the dividend payment date. The decision of the tax office was later upheld by the lower tax court.

Based on its earlier case law (VwGH 21 November 1995, 95/14/0035) and the 2022 decision of the German Federal Tax Court, the Supreme Administrative Court stated that the attribution of dividends for income tax purposes follows the economic ownership in respect of shares on the dividend resolution date. Whether the claimant qualifies as economic owner on the dividend payment date shall be of no relevance. It stems from the foregoing that the withholding tax can be only claimed by the taxpayer who qualifies as shareholder at the time of the shareholders meeting and the dividend resolution. It however remains unclear whether the claimant must be in the position to vote on the dividend resolution. In fact, the participation in the voting requires the acquisition of shares one to 14 days prior to the shareholders meeting.

Draft of the new tax authorities’ practice

Following the Court decision, the Austrian Ministry of Finance released a draft information letter on the withholding tax refund in respect of Austrian dividends. The draft letter mirrors the stronger position of the Court and shall replace the information letter of 2014. According to the latter, the attribution of dividend income follows the economic ownership on the last day prior to the ex‑date, thus, on the day, on which the shares still trade cum dividend. This requirement is linked to the delivery into the custody on the last cum‑dividend date.

Following the recent case law, the Ministry now requires the shares being delivered into the custody on the last day prior to the date of the shareholders meeting. Otherwise, the economic ownership shall remain with the seller. Next to the withholding tax refund to non‑residents, this position shall, according to the intention of the Ministry, also apply to other cases of withholding tax relief and in particular, to dividend payments under the Parent-Subsidiary-Directive or the withholding tax reduction in respect of dividends paid to private foundation. This is, however, questionable as a private foundation being an Austrian tax resident does not fall within the scope of the recent case law or the draft information letter addressed to non‑residents.