EU: CJEU referral on tax treatment of distributions made by private foundations to nonresident beneficiaries (Austria)
Whether tax treatment of distributions made by private foundations to nonresident beneficiaries constitutes an infringement of the free movement of capital
The Supreme Administrative Court of Austria on July 17, 2025, referred a preliminary question to the Court of Justice of the European Union (CJEU) regarding whether the Austrian tax treatment of distributions made by private foundations to nonresident beneficiaries constitutes an infringement of the free movement of capital.
Summary
The taxpayer is an Austrian private foundation whose beneficiaries are tax resident in Switzerland. In 2014, the taxpayer derived gains from capital assets, which were subsequently distributed to its foreign beneficiaries. Under Austrian tax rules applicable to private foundations, certain income, including gains from capital assets, is subject to corporate income tax in the hands of the foundation. In addition, any transfers made by the foundation to beneficiaries (whether resident or nonresident) are subject to capital gains tax, which must be withheld by the foundation. The foundation is allowed to reduce its taxable base for corporate income tax purposes to the extent that capital gains tax has been withheld on transfers. However, in the case of foreign beneficiaries, the reduction of the taxable base is allowed only to the extent that such beneficiaries are not exempt from Austrian tax under an income tax treaty.
In this case, the tax authorities denied the reduction of the taxable base on the grounds that the Swiss beneficiaries were exempt from Austrian tax under the relevant treaty. The taxpayer challenged the tax authority’s denial, arguing that the tax regime applicable to foreign transfers infringes the free movement of capital. The Federal Finance Court on March 26, 2024, found in favor of the taxpayer, and held the Austrian tax regime incompatible with EU law. The court based its decision on the CJEU’s judgment in case C-589/13. The tax authorities appealed to the Supreme Court, which subsequently referred the matter to the CJEU.
Read a September 2025 report prepared by KPMG’s EU Tax Centre