Income from attorney fees from the Austrian branch.
August 22, 2013 | 100,00 EUR | answered by Oliver Burchardt
Dear Sir or Madam,
I am a self-employed lawyer in Munich and I am considering the possibility of applying for an Austrian law license and registering a branch office in Austria in the office of a colleague.
The following questions arise:
- Can I deduct travel expenses between Munich and Salzburg for tax purposes? (Business trips with a private car, 30 cents/km)?
- If I generate turnover with the branch office, do I have to declare this in Austria?
- Will I be entitled to a basic tax-free allowance for income earned in Austria under the DTA?
- What requirements must be met in order to assign turnover to the Austrian branch office? Specific case: I am currently negotiating a contract with a Swiss company to pursue claims against German insurers on their behalf. If I enter into this contract under the Austrian branch office, will it be assigned to it? Must the funds I collect for the German clients flow through an Austrian foreign account or can it also be the German account?
For a detailed answer with reference to the relevant regulations, I would be grateful.
Yours sincerely,
M.P.
Dear inquirer,
Thank you for your inquiry, which I am happy to answer as part of an initial consultation.
1. Travel expenses
The travel expenses between your "main" and branch office are considered travel expenses for income tax purposes. For these trips, you can use a flat rate for simplification purposes, but you can also use the actual costs. It is difficult to specify a standard for this, as these costs constitute operating expenses within the meaning of § 4 (4) EStG.
2. Declaration obligation in Austria
By establishing a branch office in Austria, you establish a limited tax liability there, § 1 (3) EStG Austria. This branch office is a fixed establishment within the meaning of § 14 (1) DBA Germany - Austria, resulting in the income attributable to this branch office in Austria being subject to taxation.
The question of what conditions must be met to allocate the turnover is difficult to answer. It always depends on the overall circumstances. The case you mentioned is a good example. The conclusion of the contract is of course an indication, but since you are likely to carry out the activity mainly in Germany, the German tax authorities will naturally claim a right to taxation. At the same time, the Austrian tax authorities will argue that the activity should be attributed to Austria because the contract was concluded there. There are mechanisms for resolving these cases in Article 25 of the DBA, so that you do not incur double taxation. However, these procedures are usually complex and time-consuming.
In the case described, I tend to see the right of taxation in Germany, since your client is not an Austrian company and the main focus of the work is in Germany.
To answer the question more abstractly: You must first make the allocation yourself and declare the income in the respective countries in the tax returns (one in Germany, one in Austria). The allocation must be based on understandable, comprehensible, and documented facts. You naturally have a margin of discretion, where several indicators must be weighed against each other, although there are clear cases as well. For example, representing a client based in Germany before a German court would hardly be attributed to the Austrian branch. However, representing an Austrian client before the same court could, especially if this client contacted you at your branch office, be attributed to Austria.
In case of doubt, you should seek tax advice.
The question of cash flows is only an indication from a tax perspective, and there is no obligation to separate the cash flows.
3. Basic tax-free allowance
The DBA does not grant a basic tax-free allowance, but only regulates bilaterally which country has the right to taxation for which income. I assume that you only have a residence in Germany. Therefore, you are subject to unlimited tax liability here, and only limited tax liability in Austria. Like German tax law, Austrian tax law also provides a basic tax-free allowance (=basic income) for unlimited tax residents. Austria achieves this by a flat rate addition of 9,000 EUR to income, § 102 (3) EStG Austria. Since the basic income in Austria for self-employment is 11,000 EUR, you effectively have a tax-free allowance of 2,000 EUR.
I hope this information helps.
Best regards,
Oliver Burchardt
Certified Public Accountant
Tax Consultant
