Foreign income to be taken into account for calculation of the so-called “Jahressechstel” („yearly sixth”)

Austrian tax law differentiates between regular monthly salary and other (non-recurring) payments, like bonuses, 13th and 14th salary (holiday and Christmas remuneration). According to § 67 sec. 1 and 2 EStG (Austrian Income Tax Act) a special tax regime applies for other payments not exceeding one sixth of regular payments for the calendar year (“yearly sixth”):

• EUR 620 (per year) 0 % 
• EUR 621 to EUR 25,000 6 % 
• EUR 25,001 to EUR 50,000 27% 
• EUR 50,001 to EUR 83,333 35.75% 
• above EUR 83,333 regular tax rate

The Austrian Supreme Administrative Court (VwGH) recently passed a judgment of potentially far-reaching significance for foreigners seconded to Austria. In judgment Ra 2016/13/0010 of 22.02.2017, the VwGH found that the basis for the calculation of the yearly sixth comprises all income paid to the taxpayer in question by the same employer, including foreign income that is not subject to Austria income tax.

In the case in question, the applicant was seconded to Austria by his German employer between 1.12.2004 and 31.10.2006. In 2011 the applicant – who then was still working for the same employer, but no longer had a residence in Austria – exercised stock options (= subsequently paid special bonus) which he had been awarded during his secondment to Austria.

The income from the stock options was taxable in Austria in 2011 (limited tax liability) as income from employment under § 98 sec. 1 no. 4 EStG. However, the tax rate was a matter of dispute. The applicant argued that his regular income in Germany in 2011 should be taken into account for the calculation of the yearly sixth. The Tax Authority maintained that foreign income for which Austria had no right to taxation under § 98 sec. 1 no. 4 EStG could not be taken into account for the calculation of the yearly sixth.

The VwGH as the highest authority decided in favor of the applicant and found that § 67 ITA does not contain any limitation that would demand that only income from employment taxable in Austria can be taken into account for the calculation of the yearly sixth. Therefore, the entire salary paid to the taxpayer by the employer from who the other income in the sense of § 67 EStG is received needs to be taken into account for the calculation of the yearly sixth, regardless of whether Austria has the right to taxation of this salary or not.

Example:
An employee abroad receives a constant monthly remuneration of € 4000 before tax per month from his employer. The “yearly sixth” then amounts to € 8000. If the employee has received bonus payments abroad before the special payments which are linked to his prior secondment and therefore taxable in Austria, these use up the “yearly sixth”. However, if no bonus payments have been paid abroad, then the employee’s special payments taxable in Austria are taxed at a preferential rate of 6% in Austria (taking into account the tax allowance of € 620).