04. March 2026 A key aspect in applying the rules of double taxation agreements (DTAs) is the correct allocation of taxing rights to the respective countries. Article 15 of the OECD Model Tax Convention governs the allocation of taxing rights for income from employment. In this context, the causality principle plays a crucial role, as it focuses on allocating income based on its underlying cause. This is also referred to as the principle of economic attribution.
A decisive point is that taxing rights are allocated independently of when the income is actually received.
The allocation of taxing rights is carried out in two steps:
Step 1: Examination of the Causality of the Income
First, it must be examined whether the income is connected to work performed abroad. The key question is whether the remuneration would also have been granted if the foreign activity had not taken place.
For example, a foreign assignment allowance is generally not paid without a foreign assignment. Consequently, the taxing right for such an allowance lies with the state in which the activity is performed.
Step 2: Allocation Based on a General Allocation Key
All other income components that cannot be clearly attributed on a causal basis (such as regular salary, holiday pay, or Christmas bonuses) are allocated using a general allocation key, for example based on the ratio of working days.
Taxing rights are allocated according to the following principles:
- Taxing right of the state of activity
Applies where a clear causal attribution can be made (e.g. foreign assignment allowances, company car benefits if the vehicle is used exclusively in the state of activity, or an annual bonus granted exclusively for work performed abroad). - Taxing right of the state of residence
Applies to benefits in kind that are used exclusively in the state of residence. - Taxing rights allocated according to a general key
Applies to all other remuneration components under the causality principle (e.g. regular salary, holiday pay, Christmas remuneration).
How Are Deferred Bonuses Treated?
Deferred bonuses and incentive payments are not allocated according to the working-day ratio of the year in which the payment is made. Instead, allocation is based on the working-day ratio of the year in which the entitlement to the payment arose.
Accordingly, a sales bonus for the year 2024 that is paid out in 2025 must be allocated between the countries based on the working-day ratio of 2024, with taxing rights assigned accordingly.
Termination-Related Payments
The allocation of taxing rights for termination-related payments (such as severance payments, termination compensation, or continued salary payments during garden leave) has been the subject of numerous court decisions.
A recurring issue has been whether such payments should be treated as income derived from active employment (and therefore allocated based on working days) or as income not linked to active services, which would be taxable in the state of residence at the time of receipt.
Regarding severance payments, Austria has concluded a consultation agreement with Germany. This agreement provides that taxation rights for severance payments are to be allocated based on the working-day ratio during the period of active employment, where the state of residence changed in connection with the premature termination of the employment relationship. All salaries up to the end of the contractual employment period are to be taken into account.
In Austria, the prevailing administrative practice is to treat payments granted in connection with early termination of employment as active employment income. Consequently, in line with the consultation agreement with Germany, such payments are subject to the causality principle.
Continued Salary Payments After Release from Duties
The Austrian Administrative Supreme Court (VwGH) has ruled that continued salary payments following a release from duties are attributable to the period of active employment, just like severance payments, and not to the period of inactivity.
There is a clear causal link to the employee’s prior activity, meaning that the taxing right lies with the state in which the activity was previously exercised.
Progression Clause
The Austrian Federal Fiscal Court (BFG), has also stated that even if Austrian tax residence did not yet exist at the time the entitlement arose (e.g. in previous years), . It is sufficient that tax residence in Austria exists at the time of payment for the deferred income to be subject to the progression clause in the year of receipt and thus increasing the tax rate applicable on other income in Austria.
Conclusion
The causality principle is the key element in applying the allocation rules of Article 15 of the OECD Model Tax Convention. In a first step, income must be allocated based on its economic cause; in a second step, remaining income components are allocated according to a general key, such as the working-day ratio.
For deferred payments (e.g. bonuses relating to the prior year), allocation is based on the working-day ratio of the year in which the entitlement was acquired.
Termination-related payments are generally treated as income from active employment and must be allocated based on the working days of the active employment period—even if this period spans several years or decades and the activity was carried out in multiple countries.
For this reason, it is strongly recommended to maintain complete and accurate records of working days spent abroad.
Your ARTUS advisors will be happy to assist you (info@artus.at).
