Recently, the Austrian Ministry of Finance published guidance on the tax treatment of a sale of a participation in an Austrian limited liability company holding Austrian real estate by an Australian individual from a tax treaty perspective.  

In general, the double taxation treaty concluded between Austria and Australia ("DTT") provides that income from the alienation of real property may be taxed in the state in which that property is situated (cf. art. 13(1) of the DTT). For purposes of the DTT, the term "real property" encompasses shares in a company, the assets of which consist wholly or principally of direct interests in or over land in one of the states (cf. art. 13(2)(a)(iii) of the DTT).  

The facts of the case revolved around an individual resident in Australia, who held a participation of 14% in an Austrian limited liability company holding Austrian real estate. As mentioned above, in case of a sale Austria would under the DTT have the taxation right if the respective company's assets comprised wholly or principally of direct interests in Austrian real estate (and would under domestic law also be taxed). In this regard, the Austrian Ministry of Finance made two clarifications: First, that the wording "wholly or principally" does not equal predominantly in the sense of more than 50%; the provision is not applicable if the real estate assets of a company do not account for, or only marginally exceed, 50% of the total assets. Second, that the provision is only applicable if the company holds the real estate assets directly; where only a subsidiary of the company to be alienated (and not the company itself) holds real estate assets, art. 13(2)(a)(iii) of the DTT does not apply. 

Interestingly, pursuant to the Austrian Ministry of Finance, if art. 13(2)(a)(iii) of the DTT is not applicable, the catch-all clause of art. 21(2) of the DTT grants both Australia and Austria an unlimited taxation right. Under this article items of income not expressly mentioned in the foregoing articles from sources in the other state may be taxed in both states. Consequently, if an Australian resident individual alienated his or her participation in an Austrian company, Austria would retain its taxation right regardless of whether the company's assets consisted wholly or principally of direct interests in Austrian land.