Tax Treaty Case Law around the Globe 2022

11.1. Introduction: The double function of withholding tax levied on hiring-out of labour transactions under Austrian tax law

In recent years, the Austrian tax administration has put a particular focus on the tax treatment of cross-border hiring-out of labour transactions, culminating in the here discussed Supreme Administrative Court decision and the legislative changes it has provoked. This development can be traced back to two factors, which both play an equally important role in understanding the court’s decision. First, from a domestic tax perspective, the withholding obligation concerning the hiring-out of labour fee paid to a non-resident fulfills a double function. It is intended to secure Austria’s right to tax vis-à-vis the non-resident hiring-out employees as well as Austria’s right to tax vis-à-vis the hired-out employees with regard to the employment income embedded in the total fee. The domestic rules on source taxation of non-residents explicitly evidence this inherent connection when foreseeing that employment income from activities performed physically in Austria will not be subject to tax if already being taxed as part of the hiring-out of labour fee.

While the r...