New legal basis for DTA refund applications
A new legal basis for DBA refund applications was created in section 240 (4) BAO (Bundesabgabenordnung), which regulates the refund of withholding taxes if income is to be fully or partially relieved of a domestic withholding tax on the basis of a double taxation agreement.
The Tax Amendment Act 2022 (AbgÄG 2022) introduced a new legal basis for the refund of withholding taxes based on double taxation agreements (DTAs).
In addition to clarifications of the previous legal situation, such as the basic applicability to DTA refund applications and the relationship to voluntary assessments, new provisions are provided, such as the requirement of actual payment and the general applicability of the 5-year period. Furthermore, it has now been clarified that the period for filing an application in the case of a liability claim begins with this claim and not with the point in time at which the withholding tax should have been paid.
Clear legal basis for DTA refund applications
So far, DBA refund applications have been filed on the basis of section 240 (3) BAO. However, the wording of this provision has led to discussions in the past about its applicability to DBA refund applications, as section 240 (3) BAO provides for a refund (only) of “wrongfully withheld amounts”.
Many DTAs, however, provide for a two-step procedure in which (1) a withholding tax may be withheld and (2) the benefit defined by the DTA can only be achieved by way of a refund. In such cases, however, there is no case of “wrongfully withheld amounts”, which means that section 240 (3) BAO cannot be applied. With the new legal basis, these doubts have now been dispelled.
Unlike section 240 (3) BAO, repayment on the basis of the new regulation explicitly requires “withheld and paid” amounts.
Accordingly, it will be necessary for the recipients of the income to request corresponding receipts from the withholding agent regarding the payment of the withholding tax.
On the other hand, it is sometimes challenging for the withholding agent – also from a data protection point of view – to provide such a confirmation, since the withholding tax is usually transferred collectively and not separately according to income recipient.
Therefore, it will often be necessary to adapt the processes for withholding and paying withholding tax in order to be able to comply with this documentation in the future.
Relationship to the assessment
The new section 240 (4) BAO provides for subordination to the assessment – as was already the case in section 240 (3) BAO. However, a clarification was made here:
A refund can be refused if either an assessment “has to be made” or such an assessment “has already been made”. Therefore, only a compulsory assessment or a voluntary assessment that has already taken place takes precedence over a refund. The theoretical possibility of a voluntary assessment according to section 102 (1) no 3 EStG (Einkommensteuergesetz), on the other hand, cannot lead to a refusal of a refund.
Although this did not cause any difficulties in the past, the wording of section 240 (3) BAO was unclear: A refund did not have to be made even if a settlement “would have to be made in the case of an application for assessment” (section 240 (3) lit c BAO). The clarification made is therefore very welcome.
Time limit of 5 years for filing an application – even with a shorter DTA period
New, however, is a regulation concerning the time limit of 5 years:
“The application may be submitted until the end of the fifth calendar year following the year of withholding, irrespective of any shorter periods agreed in the agreement”. Consequently, the time limit of 5 years now applies to all DTAs, regardless of when they were concluded.
A welcome clarification with regard to the time limit was also made for the case of liability claims. If, for example, a person liable for withholding tax is held liable after the withholding tax has been determined, the period of 5 years begins with the date of the liability claim and not with the date on which the withholding tax would have had to be paid.
However, the refund is now subject to the proviso that the withholding tax has also been reimbursed by the withholding agent. Thus, it is a mandatory prerequisite for the application for a refund that a withholding tax determined by way of liability is or was offset against the income recipient.
An additional deadline is provided for withholding tax refunds in the wake of mutual agreement or arbitration proceedings: In this case, the application can be filed within 1 year from the issuance of the notice pursuant to section 48 (2) or (3) BAO.
Entry into force
The new provision of section 240 (4) BAO shall apply from 1 January 2023 and shall be applicable to advance notifications submitted after 31 December 2022.