Austrian Constitutional Court ruling upholds tax legislation intended to limit executive compensation, "Kurier"
Vienna, Austria - In a 138-page decision, the Constitutional Court of Austria has upheld a tax policy issued by the legislature last year, under which only the first 500,000 euros of an executive's salary are a tax-deductible corporate business expense. A compensation study by the executive search firm Pedersen & Partners shows that managers of companies in Austria with 200-300 employees earned 183,700 euros gross on average, including bonuses.
The Court found that the constitutional arguments against certain provisions of the Income Tax Act and the Corporate Income Tax Law were "unfounded" – and moreover, that the government of Austria was acting legitimately and within its scope of powers by making adjustments to tax policy which discouraged companies from offering very high executive salaries.
“According to the Court and the constitutional experts, the provisions are within the legislature's scope for setting legal policy: If the legislature is intended to reduce the income gap between a company's executives and its employees, then this is a permissible attempt to influence behavior in the public interest,” concluded Vice President Brigitte Bierlein. The Federal Government of Austria introduced the policy as it is clear that industry self-regulation has failed to stem the growth in very high executive salaries in recent years.
Based on the numbers issued through the Pedersen & Partners compensation study, the salaries earned by company managers will not be affected to an excessive degree. The 500,000 euro limit would therefore seem to be reasonable, especially considering that the new law is merely a disincentive. An adjustment to tax policy represents a lower level of legal interference than an actual legal limitation such as a maximum ratio between a company's highest and lowest salaries, or a compensation cap.