Constitutional Court on Taxation of Foreign Unit Trust Funds

2002, January 1
Dr. Thomas Krumhuber
With judgment of 7 March 2002 the Austrian Constitutional Court abolished the unequal treatment of domestic and foreign unit trust funds in the field of final taxation. To allow legislative amendments the decision becomes effective at the end of 31 March 2003 only.

1. The legal situation

The taxation of capital gains of domestic and foreign investment funds is – according to the present legal situation – non-uniform.

Whereas domestic investment funds are integrated in the system of final taxation, effecting a settlement of all other tax duties (e.g. duty payable on death), capital gains of foreign investment funds are not subject to final capital-yields taxation, but income tax without final taxation-privilege.

2. The unconstitutional regulation

The Austrian Constitutional Court found sec 97 par 1 1. sentence of the Austrian income tax act (EStG) not in conformity with the Austrian Constitution. This term however was not abolished completely by the court, but only the phrase " Z1 to 4". The unconstitutional exclusion from final taxation of foreign investment funds profits was achieved by the fact, that the mentioned regulation of the EStG only refers to the ciphers 1 to 4 of sec 93 par 3 EStG. As a result, capital gains of foreign investment funds, mentioned in cipher 5, were excluded from the effect of final taxation.

3. Effective Date

As mentioned before, the abolishment only becomes effective on 1 April 2003. In his judgment the court was concerned, that in the field of foreign unit trust funds, because of the abolishment, certain capital gains could become subject to the effect of final taxation, that in fact should not take place according to the Austrian final taxation act or other tax policy related considerations.

With the late date of effectiveness of the abolishment the Austrian lawmaker got a sufficient period to create a new regulation.


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