Ability-to-pay principle

The ability-to-pay principle has already been discussed in the literature very controversially for several years. In the jurisdiction of Austrian and German courts this principle is very important. While in the past the abil-ity-to-pay principle was understood only as political postulat, in addition, recent papers even attach legal importance to it. Fundamental scientific in-vestigations are missing so far. The ability-to-pay principle was therefore in suspicion to be more statement than reason. The courts and some authors often argue on basis of principle whose contents are hardly clarified. The research project should therefore discuss the legalbasis. On the basis of this investigation the limits of the ability - to - pay principle should be determined and also the consequences of the principle should be discussed.

To summarise it has to be said that this project has shown that the ability-to-pay principle is not laid down in Austrian tax law by itself. This is a big contrast to other countries. On the other hand the ability-to-pay principle can be seen as a consequence from the constitutive principle of equity. Concerning tax law this principle states that persons in the same situation have to be treated equally. On the other hand, persons in different situations have to be treated differently. Furthermore the researchers were able to show that this principle has also an impact on International tax law. The reason for that is that the ability to pay can be especially endangered if a taxpayer is subject to tax in two countries for the same income. The task of this research project was to analyse the ability-to-pay principle and its influence on Austrian tax law after the tax reform 2000. The first step was to determine where the ability to pay principle is laid down in the Austrian tax law. This task has especially been born by the report provided by Prof. Lang and Prof. Gassner for the fourteenth Austrian jurist`s day. As a follow up the question was placed whether the tax reform 2000 in particular and Austrian tax law in general (including Double Tax Conventions - DTCs) comply with the requirements of the constitutional principle of equity. The reason for this is that the principle of equity is the basis for the Austrian ability-to-pay principle. This research can be structured in four main topics. One of these topics was the influence of the ability-to-pay principle on taxation of individuals. Another focal point of our research was the taxation of companies and partnerships. In this field the ability-to-pay principle has e.g. influence on accounting rules. The third part of our research was dedicated to the Austrian draft of CFC legislation. This draft shall prevent tax evasion by use of foreign subsidiaries. These subsidiaries can be used to transfer profits to low tax regimes. Therefore CFC regimes try to tax the profits in the hands of the parent company by attribution of the profit to the parent company. By this attribution of profits an equal treatment to companies without cross border links shall be secured. The last but not least part of our research concerned the influence of the ability-to-pay principle on the interpretation of Double Tax Conventions. DTCs prevent double taxation of income in two countries. Therefore they distribute taxing rights between the contracting states. On the one hand failures in distribution can lead to taxation that is not in accordance with the ability-to-pay principle. This can result e.g. of different interpretations in the contracting states. It is easy to see that the resulting double taxation - in the worst case the tax burden can be more than 100 per cent - is not in accordance with the ability-to-pay principle. But also taxation in the wrong contracting state may lead to taxation that is not in accordance with the ability-to-pay principle. If the taxing state has a higher tax level than the state of source that additional tax burden has to be earned. This means a disadvantage to companies resident in the state of source. Beside Prof. Gassner and Prof. Lang, MMag. Aigner, Mag. Hofbauer, Mag. Konezny, Mag. Loukota, Mag. Stefaner, Mag. Sutter, Dr. Urtz, Mag. Zieseritsch, LL.M. and Dr. Züger also participated in this research project. In addition to shading light on the current tax law, this project also provides a good foundation for future discussions on tax reforms.