Despite the worldwide efforts of high-tax jurisdictions supported by the actions taken by G20, OECD, and EU to prevent profit shifting and tax abuse, Austrian taxpayers do not get tired of using legal entities established in low-tax countries as a tax blocker for avoiding income taxation in their state of residence. Practical experience shows that the tax shield of a foreign corporate entity is also lost when Austrian tax authorities are successful to assume that the effective place of management of the foreign entity in fact is located in Austria. The reason is that the nexus required to subject a corporate entity to unlimited tax liability in Austria refers both to a “registered office" in Austria as well as the “place of management". It is sufficient that one of the two connecting elements is fulfilled. The terms “registered office" and “place of management" are on an equal footing. If one of the two criteria is met, the foreign entity’s worldwide income is subject to unlimited tax liability in Austria under the provisions of the Austrian Corporate Income Tax Act. In case of dual resident companies, Austrian tax treaties define a treaty-based residency mainly on the basis of the “effective" place of management. Following recent court decisions, Stefan Bendlinger gives an overview of the requirements to be fulfilled to avoid that a corporate entity established under foreign law is deemed to have its place of (effective) management in Austria.
