Unequal treatment of benefits in kind
In the light of two surprising recent judgments of the Austrian Supreme Administrative Court, Austrian law practitioners are being forced to reevaluate their approach to benefits in kind, particularly with regard to staff discounts. As a result of these two judgments it is now unclear how tax and social security deductions should be applied.
General legal position
In accordance with established principles of Austrian fiscal and tax legislation, benefits in kind are relevant when calculating income tax (for the employee). Fringe benefits may also be relevant when calculating social security contributions. Benefits in kind should be included in the assessment basis for the calculation of income tax and social security contributions.
Prior to the two judgments, the position was relatively clear in relation to fringe benefits, such as a company car, company flat or other regular donations. The position is not, however, so clear in relation to special staff discounts.
It is irrelevant in terms of tax and social security contributions if an employer grants discounts to its employees which the employer also regularly grants to third parties (e.g. if an employer regularly awards a discount of 10-15% to customers, the employer can also award the same discount to its employees without creating tax and social security issues). The opposite applies, however, in the case of exclusive staff discounts that no customer would be granted.
Previous judicial practice
For many years the position of the Austrian courts has been that every benefit relating to and arising out of the employment relationship is a taxable advantage and therefore increases the assessment basis for the calculation of income tax and social security contributions. This meant that benefits such as special discounts were also to be seen as taxable benefits.
Deviation from Stare Decisis?
The Austrian Supreme Administrative Court was recently twice confronted with the question of whether a free account management service which was granted to the employees of an Austrian bank should be treated as a taxable benefit in kind. Surprisingly, the court ruled in both decisions (one case addressed tax and one social security contribution) that the respective benefit should not be included in the assessment basis for the calculation of tax and social security contributions.
The court ruled that the free account management service was not to be deemed a monetary benefit arising out of the employment relationship because the employees would theoretically be able to find a comparable product on the market. Other banks offer a free account management service and therefore the employees of the bank could potentially enjoy this service by changing banks. The court also stated that it is not in the interest of the employee but rather in the interest of the employer that its employees use its own in-house products rather than using those of a competitor.
Although the court's arguments initially seem far-fetched and would become even more so in the case of a bank that does not offer a comparable service to third parties but only to employees, it should be noted that the decisions also provide opportunities for other employers to negotiate similar benefits when it comes to tax audits in the future.