AG Opinion in Austria v Germany
This is the first case in which a Member State has brought, before the CJEU, a dispute between it and another Member State relating to the subject matter of the Treaties and submitted under a special agreement (Double Tax Convention) between the parties. The case is also important because it gives the Court the opportunity to define the limits of its jurisdiction under the Treaties and to consider whether it has the power to issue injunctions against Member States.
The dispute relates to the Double Tax Convention concluded between Austria and Germany and concerns the taxation of interest from registered certificates acquired by an Austrian Bank, a company established in Austria, from a German bank. The issue before the Court relates to the interpretation of the phrase “income from […] debt-claims with participation in [the debtor’s] profits” in Article 11(2) of the German-Austrian Convention. Austria argued that, as the Member State of residence of the beneficial owner of the interest paid, it alone is entitled to that income. Germany, on the other hand, contended that it also has the right to tax that income, as the Member State in which the interest originates because the interest must be classified as ‘income from rights or debt-claims with participation in profits’ within the meaning of the Convention. As a result of the conflict of interpretation between the two Member States, the interest was taxed twice.
The Advocate General found that Article 273 TFEU extends the Court’s jurisdiction to disputes which relate not only to EU law but also to international law, if the area of international law in question has a link to the subject matter of the Treaties – and in the present case such a link was present.
The Advocate General further found that the Court, except in case of interim measures, does not have the power to issue injunctions in the context of settling disputes such as the one in the present case and to compel Austria or Germany to act in a particular way. However, the parties must accept all of the consequences of the judgment and take the necessary measures to comply with it.
Finally, the Advocate General argued that the phrase in question must be interpreted autonomously in the context of the rules of interpretation particular to international treaties and independently of the national law of Austria and/or Germany. Consequently, he held, in favour of Austria, that the phrase must be restricted to situations in which the remuneration from debt-claims varies, at least partially, according to the amount of the debtor’s profits, which was not the case in the present proceedings. In other words, the phrase must be interpreted as meaning that it covers income that provides a creditor with a part/share of the debtor’s profits, and excludes income that varies only in the event of losses incurred by that debtor. The full opinion can be found here.
This article appears in the JHA April 2017 Tax Newsletter, which also features:
