CONVINUS Global Mobility
CONVINUS Global Mobility Insights - Frühling / Spring 2025Austria: Taxation of variable remuneration inpractice - the causality principleAuthor: Michael Obernberger, Partner, ARTUS Tax Consultancy & AuditingFor many companies, bonus payments are an important instrument for employeeretention and motivation. The tax treatment of variable remuneration isparticularly complex in the case of cross-border employment relationships inwhich employees work both in their home country and in another country.In addition to the national provisions of local tax law, the correct allocation ofsuch payments is governed in particular by bilateral double taxation agreements(DTAs). In practice, however, this often results in qualification conflicts - whichcould lead to double taxation or double non-taxation.If an employee now works across borders as part of a posting, the tax allocation ofthe income must be checked once the residence under treaty law has beendetermined. Provisions in connection with the allocation of tax on income fromemployment can be found in Art. 15 OECD-MA.Thus, "... salaries, wages and similar remuneration received by a resident of aContracting State in respect of employment may be taxed only in that State, unlessthe work is performed in the other Contracting State. If the work is performedthere, the remuneration received for it may be taxed in the other State."A definition of "salaries, wages and similar remuneration" cannot be found in thedouble taxation agreements. Therefore, in application of Art. 3 para. 2 OECD-MA,domestic law must be used to interpret the terms, whereby the scope of theremuneration is to be equated with income from employment within the meaningof § 25 öEStG. The income covered by Art. 15 para. 1 OECD-MA therefore alsoincludes bonus payments and premiums in addition to the current salary.As can be seen from the wording of the law, Art. 15 para. 1 OECD-MA generallyassigns the right to tax non-employment income to the country of residence.42
CONVINUS Global Mobility Insights - Frühling / Spring 2025However, income can be taxed in the other state if the work was performed there,as employment is generally deemed to be performed where the person isphysically present at the time the activity for which the remuneration is granted isperformed. The terms "country of residence" and "country of activity" are thereforerelevant.The country of residence is the country in which the employee is resident for taxpurposes. The latter is defined either as the country in which the employee isresident for tax purposes. In the case of residences in several countries, thecountry of residence is the country in which the employee has the closest personaland economic ties.According to the principle of causality, only those parts of the remuneration thatare attributable to an activity physically carried out there may be taxed in thecountry of activity. It is therefore only important that the remuneration is paid fora foreign activity.The time and place of payment of the remuneration are irrelevant.The source state on the other hand is the state from which income is received -usually the state in which the employer is based.The right to tax income that is attributable to an activity in a third country (i.e.neither the source country nor the country of residence) belongs to the country ofresidence.In practice, the number of relevant working days is used as a principle forapportioning the remuneration received. In order to take account of the causalityprinciple, the following procedure must therefore be followed when determiningthe income to be apportioned:Firstly, the reference components that are clearly directly attributable to astate are attributable to the respective state. Causally attributable to theactivity means that the payments would not have been incurred if this activityhad not taken place. Likewise, subsequent payments for a previous activitymust therefore be allocated according to the original income earned.43
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