Art 23A para 3 and Art 23B para 2 of the OECD Model Convention (MC) allow the resident state to take into account exempted income or capital when calculating the tax on the remaining income or capital of a resident (“proviso safeguarding progression”). However, the Austrian Supreme Administrative Court (VwGH) has clarified that these provisions do not serve as the legal basis authorizing tax administrations to consider exempted income or capital for purposes of tax calculations. Domestic tax law is the legal basis. Thus, not only residence state but also source states may consider exempted source income or capital for tax calculation purposes, even though this is not explicitly addressed in the OECD MC. Consequently, part of the literature holds that Austria, if in the position of the source state, may consider all Austrian source income under Sec 98 Individual Income Tax Act (IITA) for tax calculations of taxpayers subject to limited tax liability. Under dispute is whether the proviso safeguarding progression, when a taxpayer opts for unlimited tax liability under Sec 1 para 4 IITA, should apply only to Austrian source income under Sec 98 IITA or also to all domestic and foreign i...