Tax Treaty Case Law around the Globe 2021

S. 4I. Introduction

In the past couple of years, various cross-border hybrid “sandwich structures” have been scrutinized by the tax administration as well as the courts in Austria. One such structure, the so-called “K.S. model”, involves the interposition of a commercially active Slovak “komanditná spoločnost” (K.S.), which is viewed as “intransparent” and a resident taxpayer by the Slovak Republic but is considered as comparable with an Austrian limited partnership and hence treated as “tax transparent” from an Austria tax perspective. Simplified, under the “K.S. model”, an Austrian individual shareholder of an Austrian corporation (e.g. a “GmbH”) transfers those shares as an equity contribution to a Slovak K.S. that subsequently receives dividends from that Austrian corporation. If successful, this structure would effectively transform taxable domestic dividends into exempt foreign business income. However, it raises a number of questions from the perspective of the Austrian domestic tax system as well as from the perspective of the bilateral tax treaty between Austria and the Slovak Republic. First, will a dividend paid from the Austrian corporation to the K.S. be exempt from Austria...