Overview of Austria & US Double Tax Treaty

US & Austria Income Tax Treaty

Overview of Austria & US Double Tax Treaty: In 1996, The United States and Austria entered into an international double taxation treaty agreement. The treaty has not been overhauled since 1996 — and there are no recent published protocols as of yet. Aside from an international tax treaty, the United States and Austria have entered into other international tax agreements as well such as a Foreign Account Tax Compliance Act Agreement (FATCA); Totalization Agreement, and an Estate and Gift Tax Treaty. It is important for Taxpayers who qualify as residents of either country — and generate income — to be aware of how either country may tax that individual based on the source of the income and residence of the Taxpayer. Our Board-Certified Tax Law Specialist team has summarized the basics of the Austria/US Tax Treaty. Let’s go through the basics of the US and Austrian tax treaty:

United States/Austria Income Tax Basics

In general, the default position is that a Taxpayer who is a US person such as a US Citizen, Legal Permanent Resident, or Foreign National who meets Substantial Presence Test is taxed on their worldwide income. This would also include income that is being generated in Austria, and may be tax-free or exempt under the tax rules of Austria — unless an exception, exclusion or limitation applies (such as with pension).

Saving Clause in United States/Austria Income Tax Treaty

As we work through the United States/Austria Tax Treaty, one important thing to keep in mind is the saving clause. The saving clause is inserted into tax treaties in order to limit the application of the treaty to certain residents/citizens. With the saving clause, each country retains the right to tax certain citizens and residents as they would otherwise tax under general tax principles in their respective countries — absent the tax treaty taking effect.

• • • Notwithstanding any provision of this Convention except paragraph 5 of this Article, a Contracting State may tax its residents (as determined under Article 4 (Resident)), and by reason of citizenship may tax its citizens, as if this Convention had not come into effect. For this purpose the term “citizen” shall include a former citizen whose loss of citizenship had as one of its principal purposes the avoidance of tax, but only for a period of 10 years following such loss.

What Does This Mean?

The Saving Clause is inserted into a tax treaty in order to allow each country to reserve the right to tax citizens and residents the way that they would otherwise tax them had the treaty not been in effect. Despite the insertion of the saving clause into a tax treaty, there are exceptions to the saving clause as well —

Exception to the Saving Clause

• • • The provisions of paragraph 4 shall not affect:

      • a) the benefits conferred by a Contracting State under

        • paragraph 2 of Article 9 (Associated Enterprises)

        • paragraph 4 of Article 13 (Capital Gains)

        • subparagraph b) of paragraph 1 and paragraph 3 of Article 18 (Pensions)

        • Articles 22 (Relief from Double Taxation), 23 (Non-Discrimination) and

        • 24 (Mutual Agreement Procedure)

        • b) the benefits conferred by a Contracting State under

          • Articles 19 (Government Service)

          • 20 (Students and Trainees) and 26 (Diplomatic Agents and Consular Officers), upon individuals who are not citizens of that State, and who, in the case of the United States, do not have immigrant status.

What Does This Mean?

It means that despite the saving clause — which is used to limit the application of the treaty as a certain types of income circumstances in scenarios — there are some exceptions to the saving clause which then provides that even though the saving clause reserves the right to limit the application of treaty benefit — the exceptions to the Saving Clause are not limited by the Saving Clause.

Permanent Establishment

• • • For the purposes of this convention, the term “permanent establishment” means a fixed place of business through which the business of an enterprise is wholly or partly carried on.

    • The term “permanent establishment” shall include especially:

      • a) a place of management;

      • b) a branch;

      • c) an office;

      • d) a factory;

      • e) a workshop; and

      • f) a mine, an oil or gas well, a quarry, or any other place of extraction of natural resources.

    • A building site or construction or installation project, or an installation or drilling rig or ship used for the exploration or development of natural resources, constitutes a permanent establishment only if it has remained in that State more than 12 months.

    • Notwithstanding the preceding provisions of this Article, the term “permanent establishment” shall be deemed not to include:

      • a) the use of facilities solely for the purpose of storage, display, or delivery of goods or merchandise belonging to the enterprise;

      • b) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of storage, display or delivery;

      • c) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of processing by another enterprise;

      • d) the maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise, or of collecting information, for the enterprise;

      • e) the maintenance of a fixed place of business solely for the purpose of carrying on, for the enterprise, any other activity of a preparatory or auxiliary character;

      • f) the maintenance of a fixed place of business solely for any combination of the activities mentioned in subparagraphs a) to e) of this paragraph.

What Does This Mean?

If a resident of one country has a Permanent Establishment (PE) in the other country, then that other country has the right to tax income generated from the Permanent Establishment within its borders. But, if there is no permanent establishment in place, then the mere fact that a non-permanent establishment generates income in the other country does not allow that other country to tax the income.

Income From Real Property

• • • Income derived by a resident of a Contracting State from real property (including income from agriculture or forestry) situated in the other Contracting State may be taxed in that other State. 

    • The term “real property” shall have the meaning which it has under the law of the Contracting State in which the property in question is situated. The term shall in any case include property accessory to real property, livestock and equipment used in agriculture and forestry, rights to which the provisions of general law respecting landed property apply, usufruct of real property and rights to variable or fixed payments as consideration for the working of, or the right to work, mineral deposits, sources and other natural resources; ships, boats and aircraft shall not be regarded as real property. 

    • The provisions of paragraph 1 shall apply to income derived from the direct use, letting, or use in any other form of real property. 

    • The provisions of paragraphs 1 and 3 shall also apply to the income from real property of an enterprise and to income from real property used for the performance of independent personal services.

    • A resident of one of the Contracting States who is liable to tax in the other Contracting State on income from real property situated in the other Contracting State may elect for any taxable year to compute the tax on such income on a net basis as if such income were attributable to a permanent establishment in such other Contracting State. Any such election shall be binding for the taxable year of the election and all subsequent taxable years unless the competent authorities of the Contracting States, pursuant to a request by the taxpayer made to the competent authority of the Contracting State of which the taxpayer is a resident, agree to terminate the election.

What Does This Mean?

This article provides that if income is earned by residents of one country, as a result of real property that is located in the other country — then it may be taxed in that other country. And, since it does not use the word shall, it presumes that either country may be able to tax the income. Still, foreign tax credits from a US perspective should avoid a US person from having to pay tax to both the United States and Austria on the same income (although the foreign tax credit is not always a dollar-for-dollar credit).

Dividends

• • • Dividends paid by a company which is a resident of a Contracting State to a resident of the other Contracting State may be taxed in that other State.

    • However, such dividends may also be taxed in the Contracting State of which the company paying the dividends is a resident, and according to the laws of that State, but if the beneficial owner of the dividends is a resident of the other Contracting State, the tax so charged shall not exceed:

      • a) 5 percent of the gross amount of the dividends if the beneficial owner is a company (other than a partnership) which owns directly at least 10 percent of the voting stock of the company paying the dividends;

      • b) 15 percent of the gross amount of the dividends in all other cases. Subparagraph b) and not subparagraph a) shall apply in the case of dividends paid by a United States person that is a Regulated Investment Company. Subparagraph a) shall not apply to dividends paid by a United States person that is a Real Estate Investment Trust, and subparagraph b) shall apply only if the dividend is beneficially owned by an individual holding less than a 10 percent interest in the Real Estate Investment Trust. This paragraph shall not affect the taxation of the company in respect of the profits out of which the dividends are paid.

    • The term “dividends” as used in this Article means income from shares or other rights, not being debt-claims, participating in profits, as well as income from other corporate rights which is subjected to the same taxation treatment as income from shares by the laws of the State of which the company making the distribution is a resident; and income from arrangements, including debt obligations, carrying the right to participate in, or determined with reference to, profits, to the extent so characterized under the law of the Contracting State in which the income arises.

    • The provisions of paragraphs 1 and 2 shall not apply if the recipient of the dividends, being a resident of a Contracting State, carries on business in the other Contracting State, of which the company paying the dividends is a resident, through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the holding in respect of which the dividends are paid is effectively connected with such permanent establishment or fixed base. In such a case, the provisions of Article 7 (Business Profits) or Article 14 (Independent Personal Services), as the case may be, shall apply

What Does This Mean?

When dividends are paid by a company of one country to a resident of that other country, then that other country has the opportunity to tax the income. Noting, that the first country (aka country of source) still gets the opportunity to tax the income — but may only tax the dividend income up to a certain tax rate not to exceed 15%.

Interest

1. 1. • Interest derived and beneficially owned by a resident of a Contracting State shall be taxable only in that State.

      • The term “interest” as used in this Convention means income from debt-claims of every kind, whether or not secured by a mortgage, and whether or not carrying a right to participate in the debtor’s profits, and in particular, income from government securities and income from bonds or debentures, including premiums or prizes attaching to such securities, bonds or debentures, and including an excess inclusion with respect to a residual interest in a real estate mortgage investment conduit. Penalty charges for late payment shall not be regarded as interest for the purpose of this Convention. However, the term “interest” does not include income dealt with in Article 10 (Dividends).

      • The provisions of paragraph 1 shall not apply if the beneficial owner of the interest, being a resident of a Contracting State, carries on business in the other Contracting State in which the interest arises, through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the debt-claim in respect of which the interest is paid is effectively connected with such permanent establishment or fixed base. In such case the provisions of Article 7 (Business Profits) or Article 14 (Independent. Personal Services) as the case may be, shall apply.

      • Where, by reason of a special relationship between the payer and the beneficial owner or between both of them and some other person, the amount of the interest, having regard to the debt-claim for which it is paid, exceeds the amount which would have been agreed upon by the payer and the beneficial owner in the absence of such relationship, the provisions of this Article shall apply only to the last-mentioned amount. 

What Does This Mean?

Interest is a bit different than dividends from a taxation perspective — but oftentimes, the net-result is the same. The interest tax rules follow a residence-based concept, which means that if the interest is earned by resident of one country then it will only be taxed in that one country — of course, there are exceptions, exclusions and limitations to be aware of as well. Noting, Interest is not exempted under paragraph five (5) article one (1) from the saving clause.

Capital Gains

• • Gains derived by a resident of a Contracting State from the alienation of real property situated in the other Contracting State may be taxed in that other State.

  • For purposes of paragraph l the term “real property situated in the other Contracting State”,

    • a) where the United States is the other Contracting State, includes real property referred to in Article 6 which is situated in the United States, a United States real property interest, and an interest in a partnership, trust or estate, to the extent attributable to real property situated in the United States; and

    • b) where Austria is the other Contracting State, includes:

      • (i) real property referred to in Article 6 (Income from Real Property) which is situated in Austria; and

      • (ii) shares or similar rights in a company the assets of which consist, directly or indirectly, mainly of such real property.

    • Gains from the alienation of personal property forming part of the business property of a permanent establishment which an enterprise of a Contracting State has in the other Contracting State or of personal property pertaining to a fixed base available to a resident of a Contracting State in the other Contracting State for the purpose of performing independent personal services, including such gains from the alienation of such a permanent establishment (alone or with the whole enterprise) or of such fixed base, may be taxed in that other State.

    • Gains from the alienation of movable property that a resident of a Contracting State has or had in the other Contracting State and which is removed from that other Contracting State may be taxed in that other State in accordance with its law, but only to the extent of the gain that accrued during the time the asset formed part of the business property of a permanent establishment or fixed base that the resident has or had in that other State. Such gain may also be taxed in the first-mentioned Contracting State in accordance with its laws. However, the firstmentioned State must exclude from the base of its tax any gain that is or has been taxed in the other Contracting State in accordance with the first sentence of this paragraph.

What Does This Mean?

The capital gains rules provide that when gains are earned by a resident of one country as a result of alienating real property located in the other country — then the other country has the opportunity to tax the income. It is important to evaluate the definition of the term alienation of real property situated in the other contracting state to determine whether that particular type of asset qualifies.

Artistes and Athletes

1. 1. • Notwithstanding the provisions of Articles 7 (Business Profits), 14 (Independent Personal Services) and 15 (Dependent Personal Services), income derived by a resident of a Contracting State as an entertainer, such as a theatre, motion picture, radio or television artiste, or a musician, or as an athlete, from his or her personal activities as such exercised in the other Contracting State, may be taxed in that other State, except where the amount of the gross receipts derived by such entertainer or athlete, including expenses reimbursed to him or her or borne on his or her behalf, from such activities do not exceed twenty thousand United States dollars ($20,000) or its equivalent in Austrian shillings for the taxable year concerned.

      • 2. Where income in respect of activities exercised by an entertainer or an athlete in his or her capacity as such accrues not to that entertainer or athlete but to another person, that income may, notwithstanding the provisions of Articles 7 (Business Profits), 14 (Independent Personal Services), and 15 (Dependent Personal Services), be taxed in the Contracting State in which the activities of the entertainer or athlete are exercised. The preceding sentence, shall not apply if it is established that neither the entertainer or athlete, nor persons related thereto, participate directly or indirectly in the profits of such other person in any manner, including the receipt of deferred remuneration, bonuses, fees, dividends, partnership distributions or other distributions.

      • 3. Where, in cases other than those dealt with in the first sentence of paragraph 2, payment in respect of activities exercised by an entertainer or an athlete in his or her capacity as such is made not to that entertainer or athlete but to another person, that payment may, notwithstanding the provisions of Articles 7 (Business Profits) or 14 (Independent Personal Services), be subject to a withholding tax in the Contracting State in which the activities of the entertainer or athlete are exercised; upon request of that other person the withholding tax shall be refunded insofar as the amount of tax withheld exceeds the tax liability of the entertainer or athlete as determined under Paragraph 1. Refund claims must be accompanied by documentation required by that Contracting State.

What Does This Mean?

This section provides that, subject to other sections, an artist or entertainer who is a resident of one country and provides entertainment services in the other country may be tax in the other country — although any income that is less than $20,000 in total is exempt; there are exceptions, exclusions and limitations.

Pensions

1. 1. • Subject to the provisions of Article 19 (Government Service), a) pensions and other similar remuneration beneficially derived by a resident of a Contracting State in consideration of past employment shall be taxable only in that State, and b) social security payments and other public pensions paid by a Contracting State to an individual who is a resident of the other Contracting State or a citizen of the United States shall be taxable only in the first-mentioned Contracting State.

      • Annuities derived and beneficially owned by a resident of a Contracting State shall be taxable only in that State. The term “annuities” as used in this paragraph means a stated sum paid periodically at stated times during a specified number of years, under an obligation to make the payments in return for adequate and full consideration (other than services rendered).

      • Alimony paid by a resident of a Contracting State to a resident of the other Contracting State shall be taxable only in the first-mentioned Contracting State. The term “alimony” as used in this paragraph means periodic payments made pursuant to a written separation agreement or a decree of divorce, separate maintenance, or compulsory support.

      • Periodic payments, not dealt with in paragraph 3, for the support of a minor child made pursuant to a written separation agreement or a decree of divorce, separate maintenance, or compulsory support, paid by a resident of a Contracting State to a resident of the other Contracting State, shall be exempt from tax in both Contracting States.

      • a) Contributions borne by an individual who renders dependent personal services in a Contracting State to pension scheme established in and recognized for tax purposes in the other Contracting State shall be deducted, in the first-mentioned State, in determining the individual’s taxable income, and treated in that State, in the same way and subject to the same conditions and limitations as contributions made to a pension scheme that is recognized for tax purposes in that first-mentioned State, provided that:

        • • (i) the individual was not a resident of that State, and was contributing to the pension scheme, immediately before he or she began to exercise employment in that State; and

          • (ii) the pension scheme is accepted by the competent authority of that State as generally corresponding to a pension scheme recognized as such for tax purposes by that State.

        • b) For the purposes of subparagraph a):

          • (i) the term “a pension scheme” means an arrangement in which the individual participates in order to secure retirement benefits payable in respect of the dependent personal services referred to in subparagraph a); and

          • (ii) a pension scheme is recognized for tax purposes in a State if the contributions to the scheme would qualify for tax relief in that State.

What Does This Mean?

Pensions are always an integral part of any tax treaty. Paragraph 18 provides that pension earned by resident of one country is only taxable in that country. But, when referring to Social Security payments and other public pensions, it is taxed by source, which means the country that is making the payment gets the opportunity to tax the income. A portion of the pension application is exempted from the Saving Clause.

Government Service

• • • Wages, salaries, and similar remuneration, including pensions, annuities, or similar benefits, paid from public funds of a Contracting State or a political subdivision or a local authority thereof to a citizen of that Contracting State for labor or personal services performed as an employee of that Contracting State or political subdivision or local authority thereof in the discharge of governmental functions shall be taxable only by that Contracting State.

    • The provisions of Articles 14 (Independent Personal Services), 15 (Dependent Personal Services), 17 (Artistes and Athletes), and 18 (Pensions) shall apply to remuneration and pensions in respect of services rendered in connection with a business carried on by a Contracting State or a political subdivision or a local authority thereof.

    • Paragraph 1 shall also apply to remuneration paid to the Austrian Foreign Trade Representatives of the Austrian Federal Economic Chamber and to the staff members of the Austrian Foreign Trade Offices to the extent that they are discharging governmental functions in the United States, provided that the recipients of such remuneration are citizens of Austria.

What Does This Mean?

When it comes to government service, it is important to note that if a person earns renumeration — including pensions as a result of working for the government — then those public funds are only taxable in that country.

Relief from Double Taxation

• • • In accordance with the provisions and subject to the limitations of the law of the United States (as it may be amended from time to time without changing the general principle hereof), the United States shall allow to a resident or citizen of the United States as a credit against the United States tax on income: a) the income tax paid to Austria by or on behalf of such citizen or resident; and b) in the case of a United States company owning at least 10 percent of the voting stock of a company which is a resident of Austria and from which the United States company receives dividends, the income tax paid to Austria by or on behalf of the distributing company with respect to the profits out of which the dividends are paid. For the purposes of this paragraph, the taxes referred to paragraphs 2b) and 3 of Article 2 (Taxes Covered) shall be considered income taxes.

    • Where a United States citizen is a resident of Austria: a) with respect to items of income that under provisions of this Convention are exempt from United States tax or that are subject to a reduced rate of United States tax when derived by a resident of Austria who is not a United States citizen, Austria shall allow as a credit against Austrian tax, only the tax paid, if any, that the United States may impose under the provisions of this Convention, other than taxes that may be imposed solely by reason of citizenship under the saving clause of paragraph 4 of Article 1 (Personal Scope); b) for purposes of computing United States tax on those items of income referred to in subparagraph a) the United States shall allow as a credit against United States tax the income tax paid to Austria after the credit referred to in subparagraph a); the credit so allowed shall not reduce the portion of the United States tax that is creditable against the Austrian tax in accordance with subparagraph a); and c) for the exclusive purpose of relieving double taxation in the United States under subparagraph b), items of income referred to in subparagraph a) shall, notwithstanding anything in paragraph 4, be deemed to arise in Austria to the extent necessary to avoid double taxation of such income under subparagraph b).

    • In the case of Austria, double taxation shall be avoided as follows: a) Where a resident of Austria derives income which, in accordance with the provisions of this Convention, may be taxed in the United States (other than solely by reason of citizenship in accordance with paragraph 4 of Article 1 (Personal Scope)), Austria shall allow as a deduction from the tax on the income of that resident, an amount equal to the income tax paid in the United States. Such deduction shall not, however, exceed that part of the income tax as computed before the deduction is given which is attributable to the income that may be taxed in the United States. A tax levied according to paragraph 6 of Article 10 (Dividends) shall be attributable to the taxable income derived by the permanent establishment in the year which that tax is levied. b) Where in accordance with any provision of the Convention income derived by a resident of Austria exempt from tax in Austria, Austria may nevertheless in calculating the amount of tax on the remaining income of such resident, take into account the exempted income.

    • For the purposes of allowing relief from double taxation pursuant to paragraph 1 of this Article, and subject to such source rules in the domestic laws of the Contracting States as apply for the purpose of limiting foreign tax credit, the source of income and profits shall be determined exclusively as follows:

      • a) income and profits derived by a resident of a Contracting State which may be taxed in the other Contracting State in accordance with this Convention (other than solely by reason of citizenship in accordance with paragraph 4 of Article 1 (Personal Scope)) shall be deemed to arise in that other State;

      • b) income and profits derived by a resident of a Contracting State which may not be taxed in the other Contracting State in accordance with this Convention shall be deemed to arise in the first-mentioned State. The rules of this paragraph shall not apply in determining credits against United States tax for foreign taxes other than the taxes referred to in paragraphs 2b) and 3 of Article 2 (Taxes Covered).

What Does This Mean?

This is more of a general provision that provides that the purpose of the tax treaty is to avoid certain double taxation — and that subject to certain restrictions in the different articles, double taxation will prevent a person from being taxed twice on the same income.

Exchange of Information and Administrative Assistance

• • • The competent authorities of the Contracting States shall spontaneously or upon request exchange such information as is necessary for carrying out the provisions of this Convention or of the domestic laws of the Contracting States concerning taxes covered by this Article insofar as the taxation thereunder is not contrary to the Convention. The carrying out of provisions of the domestic laws of the Contracting States concerning taxes includes penal investigations with regard to fiscal offenses relating to taxes covered by this Article. The competent authorities of the Contracting States may agree on information which shall be furnished on a regular basis. The exchange of information is not restricted by Article 1 (Personal Scope). Any information received by a Contracting State shall be treated as secret in the same manner as information obtained under the domestic laws of that State and shall be disclosed only to persons or authorities (including courts and administrative bodies) involved in the assessment or collection of, the enforcement or prosecution in respect of, or the determination of appeals in relation to, or the oversight of the administration of the taxes covered by this Article. Such persons or authorities shall use the information only for such purposes. They may disclose the information in public court proceedings or in judicial decisions.

    • In no case shall the provisions of paragraph 1 be construed so as to impose on a Contracting State the obligation:

      • a) to carry out administrative measures at variance with the laws and administrative practice of that or of the other Contracting State;

      • b) to supply information which is not obtainable under the laws or in the normal course of the administration of that or of the other Contracting State;

      • c) to supply information which would disclose any trade, business, industrial, commercial or profession secret or trade process, or information, the disclosure of which would be contrary to public policy.

    • If information concerning taxes is requested by a Contracting State in accordance with this Article, the other Contracting State shall obtain the information to which the request relates in the same manner and to the same extent as if the tax of the first-mentioned State were the tax of that other State and were being imposed by that other State. If specifically requested by the competent authority of a Contracting State, the competent authority of the other Contracting State shall provide information under this Article in the form of depositions of witnesses and authenticated copies of unedited original documents (including books, papers, statements, records, accounts, or writings), to the same extent such depositions and documents can be obtained under the laws and administrative practices of such other State with respect to its own taxes.

    • The tax authorities of a Contracting State may deliver documents to persons in the other Contracting State by using postal services. Each Contracting State shall, for purposes of its taxes, determine in accordance with its domestic law the legal efficacy or sufficiency of documents so delivered.

What Does This Mean?

The exchange of information provision is designed to further enforce the fact that the purpose of the tax treaty is to promote cooperation and to facilitate any exchange of information necessary for each country to obtain the goals and objectives of being in a double taxation agreement with the other country.

Offshore Reporting (FBAR & FATCA) & United States/Austria Tax Treaty

When a US person has various Accounts, Assets or Investments in Austria, they have to reported to the United States each year on various different forms depending on the value of and category of the assets/accounts.

Here are some common forms which may need to be filed:

5 International Tax Forms You May Have Missed

The following is a summary of five (5) common international tax forms.

FBAR (FinCEN 114)

The FBAR is used to report “Foreign Financial Accounts.” This includes investments funds, and certain foreign life insurance policies.

The threshold requirements are relatively simple. On any day of the year, if you aggregated (totaled) the maximum balances of all of your foreign accounts, does the total amount exceed $10,000 (USD)?

If it does, then you most likely have to file the form. The most important thing to remember is you do not need to have more than $10,000 in each account; rather, it is an annual aggregate total of the maximum balances of all the accounts.

Form 8938

This form is used to report “Specified Foreign Financial Assets.”

There are four main thresholds for individuals is as follows:.

• Single or Filing Separate (in the U.S.): $50,000/$75,000
• Married with a Joint Returns (In the U.S): $100,000/$150,000
• Single or Filing Separate (Outside the U.S.): $200,000/$300,000
• Married with a Joint Returns (Outside the U.S.): $400,000/$600,000

Form 3520

Form 3520 is filed when a person receives a Gift, Inheritance or Trust Distribution from a foreign person, business or trust. There are three (3) main different thresholds:

• Gift from a Foreign Person: More than $100,000.
• Gift from a Foreign Business: More than $16,076.
• Foreign Trust: Various threshold requirements involving foreign Trusts

Form 5471

Form 5471 is filed in any year that you have ownership interest in a foreign corporation, and meet one of the threshold requirements for filling (Categories 1-5). These are general thresholds:

• Category 1: U.S. shareholders of specified foreign corporations (SFCs) subject to the provisions of section 965.
• Category 2: Officer or Director of a foreign corporation, with a U.S. Shareholder of at least 10% ownership.
• Category 3: A person acquires stock (or additional stock) that bumps them up to 10% Shareholder.
• Category 4: Control of a foreign corporation for at least 30 days during the accounting period.
• Category 5: 10% ownership of a Controlled Foreign Corporation (CFC).

Form 8621

Form 8621 requires a complex analysis, beyond the scope of this article. It is required by any person with a PFIC (Passive Foreign Investment Company).

The analysis gets infinitely more complicated if a person has excess distributions. The failure to file the return may result in the statute of limitations remaining open indefinitely.

*There are some exceptions, exclusions, and limitations to filing.

Receiving a Gift or Inheritance From Austria

If you are a U.S. Person and receive a gift from a Foreign Person, Foreign Business or Foreign Trust, you may have to file a Form 3520. The failure to file these forms may lead to IRS Fines and Penalties (see below).

Which Banks in Austria Report U.S. Account Holders?

As of now, there are nearly 2000 Foreign Financial Institutions, within Austria that report US account holder information to the IRS. The FFI list can be found here:

What is important to note, is that the list is not limited to just bank accounts. Rather, when it comes to FATCA or FBAR reporting, it may involve a much broader spectrum of assets and accounts, including:

• Bank Accounts
• Investment Accounts
• Retirement Accounts
• Direct Stock Ownership
• ETF and Mutual Fund Accounts
• Pension Accounts
• Life Insurance or Life Assurance Policies

Totalization Agreement & the United States/Austria Tax Treaty

The purpose of a Totalization Agreement is to help individuals avoid double taxation on Social Security (aka U.S. individuals living abroad and who might be subject to both US and foreign Social Security tax [especially self-employed individuals] from having to pay Social Security taxes to both countries).

As provided by the IRS:

• • • “The United States has entered into agreements, called Totalization Agreements, with several nations for the purpose of avoiding double taxation of income with respect to social security taxes.

      These agreements must be taken into account when determining whether any alien is subject to the U.S. Social Security/Medicare tax, or whether any U.S. citizen or resident alien is subject to the social security taxes of a foreign country”

The United States has entered into 26 Totalization Agreements, including Austria.

United States/Austria Tax Treaty is Complex

In conclusion, The US and Austria tax treaty is a great source of information to help better understand how certain income may be taxed by either country depending on the source of income, the type of income and the residence of the taxpayer. The tax outcome may be changed depending on whether or not the savings clause impacts how tax rules will be applied for certain types of income.

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure.

Contact our firm for assistance.