In a recently published ruling, the Austrian Ministry of Finance dealt with the question whether Austria had a right to levy exit tax on capital gains as a result of the relocation of a taxpayer from Austria to Canada (EAS 3412).
Generally, exit taxation within the meaning of sec. 27(6)(1) of the Austrian Income Tax Act (Einkommensteuergesetz) is triggered when, inter alia, a taxpayer, holding shares and bonds as a non-business asset (Privatvermögen), moves his or her residency from Austria to another country. The relocation normally restricts Austria's right of taxation and is therefore considered equivalent to a taxable sale of the respective assets.
The double taxation treaty concluded between Austria and Canada ("DTT"), however, contains some special rules in this respect: Art. 13(5) of the DTT generally allocates the right to tax profits from the sale of assets (including shares and bonds) to the state of residence of the seller (i.e., Canada in the case at hand). Art. 13(6) of the DTT, however, provides for the taxation right of Austria for a further period of five years after the move of residency, provided that the taxpayer concerned is an Austrian citizen or was resident in Austria for at least ten years prior to the sale of the assets.
In this respect, exit tax is only triggered after such five-year period. A sale of the assets during the five-year period would lead to the capital gains being taxable in Austria, with Austria retaining the taxation right under the DTT.