• The Supreme Administrative Court ("VwGH") has for the first time dealt with the issue of the refund of withholding tax in the case of a cum/ex arrangement (VwGH 28.06.2022, Ro 2022/13/0002).
• In its reasoning, the Supreme Administrative Court (VwGH) deviates from the Federal Fiscal Court's (BFG) reasoning:
• The person who is the beneficial owner at the time of the resolution on the distribution is entitled to a refund of withholding tax. Whether the shares were acquired before the dividend was paid out ("cum" dividend) is therefore not decisive in the view of the VwGH.
Cum/Ex arrangements and basic issueV
The decision of the Supreme Administrative Court (VwGH) concerned a so-called cum/ex arrangement. Such arrangements have not only become the focus of the tax authorities due to the cases of tax abuse, in which capital gains tax has been refunded several times, but have also become a hot topic in the media due to the far-reaching nature of the cases.
In cum/ex schemes, shares are acquired around the dividend record date. The shares are sold after the date of the resolution of the general meeting on a distribution of profits of the public limited company, but immediately before the date on which the resolved dividend is to be distributed. The sale of the shares is thus made with dividend entitlement ("cum" dividend). The delivery of the shares to the buyer's securities account, on the other hand, takes place several days later after the distribution date - thus without dividend entitlement ("ex" dividend). The payment of the dividend is still made to the seller, who makes a compensation payment to the buyer.
Generally, domestic stock corporations withhold withholding tax when distributing dividends and pays it to the tax office. If the recipient of the dividend is resident abroad, he or she can regularly demand a refund of the capital gains tax on the basis of the applicable double taxation agreement (cf. Art 10, 23 OECD-MA, Sec 240 Para 3 BAO). In the case of cum/ex arrangements, it must be clarified who is entitled to a refund of the withholding tax paid. Otherwise withholding tax could wrongly be refunded twice or more often.
The appellant was a corporation domiciled in the United Arab Emirates (UAE). In 2013, it acquired shares in listed Austrian public limited companies via a broker in over-the-counter (OTC) trading. In each case the purchase took place shortly after the date of the distribution resolution of the general meeting of the respective public limited company. The shares were therefore purchased with a dividend entitlement already accrued ("cum" dividend).
The shares were delivered "ex" to the appellant's securities account after the settlement had been fully completed by OeKB, i.e. after the dividend record date (which is the relevant date for the securities account balance for the receipt of the dividend payment). As compensation for the lost dividends, the appellant received compensation payments in the amount of the net dividends. The "trading approach" of the appellant provided for the purchase of securities after the resolution of a distribution but before the ex-dividend date and the subsequent short-term sale within a certain period of time.
The Austrian stock corporations withheld tax when paying out the dividends and paid it to the tax office. Subsequently, the appellant applied to the tax office in two submissions for a refund of Austrian capital gains tax totalling approximately EUR 2,3 million on the basis of Article 10 of the DBA concluded between the UAE and Austria and pursuant to § 240 (3) BAO. The tax office however refused the refund of withholding tax. The tax office justified its refusal by stating that according to the documents submitted (which were provided in the context of supplementary requests), the shares were purchased before the dividend record date (ex-Date), but were only deposited in the securities account after this date. The dividends were therefore to be attributed to the previous shareholder.
Decision of the Federal Fiscal Court (BFG) of 20.07.2021, RV/7102008/2017
The appellant filed an appeal against the tax office's decisions and requested a referral to the Federal Fiscal Court (BFG) following a dismissal of the preliminary decision by the tax office. The appellant argued to be entitled to a refund of withholding tax based on the appellant having already acquired beneficial ownership in the shares upon conclusion of the purchase agreement.
The Federal Fiscal Court (BFG) did not uphold the appeals. In summary, it held that the appellant had acquired neither civil nor beneficial ownership of the shares prior to the deposit of the shares on the securities account due to a lack of power of disposition. This resulted from the fact that the appellant had not been able to assert any claim to dividend payment at that time. The shares had been deposited "ex" dividend in the appellant's securities account and the appellant had no claim to an original dividend payment at the time of the delivery. This was seen as a clear indication that the appellant had not received any dividends subject to withholding gains tax, but only compensation payments, which had been confirmed by the depositary bank as dividend payments. The shares acquired "cum" dividend and delivered "ex" dividend therefore did not give rise to a claim for refunding of the withholding tax levied on the original dividend.
Decision of the Administrative Court of 28.06.2022, Ro 2022/13/0002
The Supreme Administrative Court (VwGH) dismissed the appellant's appeal. The refund of capital gains tax on the basis of Articles 10 and 23 of the double taxation agreement with the UAE and Sec 240 Para 3 BAO presupposed that the appellant was a tax debtor and that the capital gains (dividends) were attributable to the appellant for corporate income tax purposes.
The subject of dividends is whoever is the beneficial owner of the shares at the time of the resolution on the distribution of profits. The shareholder has the pecuniary claim to dividend distribution - even if not yet due - from the time of the profit distribution resolution of the general meeting; if the shareholder subsequently assigns this claim (usually together with the share) to a third party, the third party cannot be the attributing subject for the dividend claim that has already arisen before.
In the case under appeal, it is clear from the facts that the appellant acquired shares in listed domestic companies in 2013 after the date of the distribution resolution of the general meeting of the respective stock corporation, i.e. with an already accrued dividend claim ("cum" dividend). The question of whether the beneficial ownership of the shares was already acquired with the conclusion of the purchase agreement (this was the position of the appellant) or only with the later delivery to her securities account (according to the position of the Federal Fiscal Court) could remain open.
The decision of the Supreme Administrative Court (VwGH) is of particular importance, not only because of the current media attention surrounding the issue of cum/ex trades. In its legal assessment, the Supreme Administrative Court (VwGH), like the tax office and the Federal Fiscal Court (BFG), comes to the conclusion that the appellant is not entitled to a refund of the capital gains tax, but gives a different reasoning. The Supreme Administrative Court (VwGH) explains that the beneficial ownership on the distribution date is not decisive. The decisive factor is who the beneficial owner of the shares is on the day of the distribution resolution in the general meeting of the stock corporation. If shares are sold after the date of the distribution resolution with an already accrued dividend claim ("cum" dividend), there is no claim for reimbursement of the capital gains tax by the purchaser because the dividends are not attributed as income.
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Dr. Christoph Schimmer, Counsel