Non-application decree

The law provides for tax exemptions or favorable flat tax rates for certain employer benefits provided in addition to the pay that is already owed for work. For example, allowances provided in addition to the pay that is already owed for employees’ work (for childcare costs, for example), can be paid tax-free, up to certain maximums in some cases. Favorable flat-rate taxation can be chosen for allowances paid to offset employees’ costs for travel between home and their first place of work and for Internet use. These allowances must also be paid in addition to the pay that is already owed for the employee’s work.

The law has clarified that effective in 2020, benefits provided by an employer, whether in kind or as allowances, are considered to be provided “in addition to the pay already owed for work” only if

• the benefit is not counted toward the claim to pay for work,

• the claim to pay for work is not reduced in favor of the benefit,

• the earmarked benefit is not granted in lieu of a future increase in the employee’s pay for work that had already been agreed, and

• the employee’s pay does not increase if the special benefit is eliminated or ceases to apply.

The fiscal administration had previously issued a non-application decree regarding the amended case law of the Federal Fiscal Court on the granting of additional benefits and the permissibility of deferral of compensation. The Federal Ministry of Finance (BMF) has now moved in a different direction, issuing the following clarification for the benefit of affected employees retroactively for years prior to 2020:

The requirement that the benefit be additional is deemed to be met in all cases in which non-earmarked pay for work is validly reduced under labor law in favor of earmarked benefits provided by the employer (“change of form of pay”).

However, non-earmarked pay for work that is subject to the provisions of collective agreements cannot be reduced or deferred in favor of certain other earmarked benefits that receive favorable tax treatment. This is because the collectively agreed pay scale applies again after the benefits that receive favorable tax treatment cease to apply.

Note: Employers are well advised to invoke the less-stringent legal view taken by the fiscal authorities on the requirement that these benefits be provided in addition to pay and to challenge the original non-application decree, especially when undergoing external tax audits for calendar years up to and including 2019.