Academic literature and meanwhile also the EU-Commission have reproached Austria not to respect the EU-principle of free movement of capital because dividend distributions on direct investments (10 % minimum participation) are tax exempt domestically and in relation to EU-companies but are not so exempt when paid to companies in the Economic European Area; in addition it has been criticised that distributions of portfolio dividends (participations below 10 %), which are subjected to the Austrian dividend tax, are eventually exempted in the hands of a receiving Austrian company through an imputation mechanism but are not so exempt when paid to EU and EEA-companies. Austria would meet these concerns if the source tax exemption as provided for in section 94a of the Income Tax Act were extended to EEA-companies and in addition were granted without the 10 % minimum holding requirement. In the article the author explains with regard to the first point of criticism that a distinction has to be made between dividend distributions into the EEA zone and those flowing into the EU zone as EU countries have to provide exchange of information and assistance in the recovery of taxes according to ...