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Treaty between Austria and Denmark – details — Orbitax Tax News & Alerts

Details of the newincome and capitaltax treaty between Denmark and Austria, signed on 25 May 2007, have become available. The treaty was concluded in the German and Danish languages, each text having equal authenticity. The treaty entered into force on 27 March 2008. The new treaty will be applicable from the year 2009. The new treaty replaces the Austria-Denmark income and capital tax treaty of 23 October 1961 as amended by the protocol of 29 Octiober 1970. The treaty generally follows the OECD Model Convention.

The maximum rates of withholding tax are:

-   15% on dividends in general, but 0% if the beneficial owner is a company holding directly at least 10% of the capital of the distributing company;
-   0% on interest; and
-   0% on royalties.

Deviations from the OECD Model include that:

-   the provisions of Art. 8 (Shipping, inland waterways transport and air transport) are also relevant for income derived from container services;
-   the treaty contains an Art. 14 (Independent personal services). Fees for independent services may be taxed in the other state only to the extent that they are attributable to a fixed base;
-   annuities are only taxable in the resident state, which keeps its taxation rights even if the person moves to the other state (Art. 19 para 3); and
-   payments from social security insurance may only be taxed in the source state (Art. 19 para 2).

The treaty contains a special regime in respect of the consortium Scandinavian Airlines System (SAS). The profits of the consortium are only taxable in the Contracting State in which the place of effective management of the enterprise is situated, insofar as the profits are attributable to the SAS Denmark A/S (Art. 8 para 5). Capital gains from the alienation of ships or aircraft operated in international traffic by the SAS are only taxable in the state of management insofar as the capital gains belong to the SAS Denmark A/S (Art. 13 para 5). Remuneration received by a Danish resident, which is derived in respect of an employment exercised aboard an aircraft operated in international traffic by SAS, may only be taxed in Denmark (Art. 15 para 4).

The treaty includes several special provisions for the exploitation of hydrocarbon and oil deposits:

-   a resident of one contracting state who explores or delivers deposits of hydrocarbon in the other state is deemed to have a permanent establishment there if this activity is performed for at least 30 days within a period of 12 months (Art. 21 para. 1 and 2);
-   offshore activities of a drilling platform only constitute a permanent establishment if the activities are performed for more than 365 days within a period of 18 months. Activities of a company group are aggregated for this purpose (Art. 21 para. 3); and
-   profits derived from the transportation of goods or persons by aircrafts or ships to a place where offshore activities are undertaken to explore hydrocarbon deposits are only taxable in the state where the management of the enterprise is situated (Art. 21 para. 4).

Austria generally provides for an exemption method to avoid double taxation, but grants credit for taxes paid in respect of dividends. If the income derived or capital owned by a resident of Austria is, under the treaty, exempt from tax in Austria, Austria may nevertheless take into account the exempt income or capital in calculating the amount of tax on the resident's other income or capital (exemption with progression). Denmark generally provides for the credit method to avoid double taxation.