Austria Asked To Amend Income Tax Rules For Foreign Income

by Ulrika Lomas, for LawAndTax-News.com, Brussels

28 March 2007

The European Commission on Monday sent a reasoned opinion to Austria under Article 226 of the EC Treaty, formally requesting the Austrian government to change a provision of its personal income tax legislation that the EC believes is incompatible with the principles of free movement of workers, and freedom of establishment in the Internal Market.

According to Austrian law under certain conditions, resident taxpayers with foreign income cannot benefit from full tax deduction of personal expenses, while residents with domestic income can.

As things currently stand, certain personal expenses can be deducted from income when calculating income tax ("Steuerabsetzbeträge").

However, the same legislation limits this deduction to a pro rata amount of these expenses if the resident taxpayer has foreign income which is tax exempt but subject to progression, whereas a resident with only domestic income will receive the full allowances.

In the Commission's view, the rules on reducing the amounts deducted when foreign income is exempt from national tax, but subject to progression, impair the freedom of movement of workers and the freedom of establishment as guaranteed by Articles 39 and 43 of the EC Treaty.

It observed that:

"Indeed, they result in higher taxation in comparison to persons who have an exclusively domestic income."

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