Prohibition on deduction of manager remuneration in connection with the research premium generally not applicable

In its recently published decision (30/09/2025, Ro 2024/13/0017-6), the Austrian Supreme Administrative Court (VwGH) ruled that the prohibition on deduction of manager remuneration pursuant to section 20 para. 1 subsec. 7 Austrian Income Tax Act (EStG) is not applicable for calculating the assessment base for the research premium, thus amending the Austrian Federal Financial Court (BFG)’s decision (20/03/2024, RV/7102953/2022 and 20/03/2024, RV/7101947/2023).

Description

In the present case, the appellant applied for the research premium pursuant to section 108c EStG for in-house research and development (R&D) for the years 2020 and 2021. The cover letter to the application specified that the full amount of the company’s personnel expenses were applied for the calculation of the assessment base for the research premium and that the prohibition on deduction of manager remuneration pursuant to section 20 para. 1 subsec. 7 EStG (remunerations exceeding EUR 500,000 per year per individual) was not applied.

This procedure was justified by referencing to the Austrian Regulation on Research Premiums (FoPV) specifying that only the provisions of section 6 subsec. 10 and section 20 para. 2 EStG as well as of section 12 para. 2 Austrian Corporate Income Tax Act (KStG) are applicable. Moreover, it was argued that the research premium is a separate levy, independent from the income tax and corporate income tax.

Course of the proceedings

The tax authority did not follow this interpretation and set the research premium reduced by the management remuneration not deductible for tax purposes in each case. Complaints were filed against the tax assessment notices and appeals were submitted to the BFG.

The BFG rejected the appeals reasoning that the definitions used in the FoPV are based on the terminology of the income tax law as unfounded. The income tax law has always been decisive for legally regulating the research premium. Thus, terms such as “expenses” within the meaning of the FoPV are to be interpreted as “expenses” (expenditures) within the meaning of the EStG. Therefore, this interpretation implies the application of section 20 para. 1 subsec. 7 EStG.

The appeal was successful since there were no rulings by the VwGH yet, regarding the legal issue in question.

Key points of the VwGH

The VwGH overturned the appealed findings of the BFG declaring them unlawful on the following grounds:

• • The FoPV clarifies which expenses are included in the assessment base of the research premium. Reference is made to the provisions of section 6 subsec. 10 and section 20 subsec. 2 EStG as well as to section 12 para 2 KStG.
  • The prohibition on deduction of manager remuneration (section 20 para. 1 subsec. 7 EStG and section 12 para. 1 subsec. 8 KStG) was only introduced in 2014, thus it was not applicable at the time the FoPV 2012 was issued.
  • Moreover, the FoPV was not amended on the occasion of introducing this provision (2014). Furthermore, no reference was included in the course of two amendments of the FoPV (which have taken place since 2014).
  • The tax provisions explicitly mentioned in the FoPV (section 6 para. 10 and section 20 para. 2 EStG as well as section 12 para. 2 KStG) refer to regulations granting a tax benefit aiming at preventing the application of several tax benefits.
  • However, the prohibition on deduction of manager remuneration is no benefit, rather the opposite. Moreover, unlimited deductibility is no benefit as well, rather it complies with common tax regulations.
  • Thus, there is no comparability with the provisions of section 6 para. 10 and section 20 para. 2 EStG as well as section 12 para. 2 KStG, which at most may justify an (analogous) application to the assessment base of the research premium.

Summary/Implications in practice

The VwGH states in its decision that the prohibition on deduction of manager remuneration is not applicable to the calculation of the assessment base for the research premium.

This results in possible need for action for pending proceedings. Pursuant to procedural regulations, it is to be verified whether correcting previous years is still possible.

Considering this decision, it remains to be seen whether also other provisions for determining profit under tax law will not be considered in the future (such as the prohibition on deduction of representation expenses pursuant to section 20 para. 1 subsec. 3 EStG or the luxury tax threshold for passenger vehicles pursuant to section 20 para. 1 subsec. 2 lit. b EStG).

At the moment, the consultation draft for the Austrian Regulation on Research Premiums 2025 explicitly includes the application of the prohibition on deduction of manager remuneration and of other provisions or determining profit under tax law. Further developments remain to be seen.

If you have any questions, our experts are happy to provide advice.