In case a loss arises in an enterprise in the state of residence, but the enterprise earns taxable income in a permanent establishment abroad, foreign taxes already paid cannot be deducted. The Austrian Federal Fiscal Court decided in a case in which an Austrian enterprise operated permanent establishments in two member states. In question was the scope of the application of Art 23 OECD Model – the deduction method. In the state of residence, Austria, the deduction of foreign taxes was denied because of the lack of tax substance. Austrian tax law does not foresee the application of deduction potential in future taxation periods.
