Federal Fiscal Court: New court decision on violations of the limitation of deductions of manager salaries

Mohamed Hemdan
insight featured image
The BFG („Bundesfinanzgericht“) has commented on questions relating to violations of the limitation of deductions pursuant to § 20 para. 1 no. 7 Income Tax Act (“EStG”) on "manager salaries" and established criteria for culpability in the event of non-compliance with this limitation.

Facts of the case and question

The BFG decision in the case at hand (BFG 1.12.2023, RV/2100533/2023) was centered around the voluntary disclosure by the complainant concerning corporate income tax for the years 2016 to 2018. The tax error primarily related to the deduction prohibition for managerial remuneration exceeding EUR 500,000.

The complainant's argument was based, amongst other things, on the fact that the mistake in relation to manager salaries was neither intentional nor grossly negligent. Internal communication deficits were brought forward as justification; due to an internal group data protection guideline, the accounting department was not provided with salary data of individual persons by the HR department (so-called ‘Chinese wall’). This made it difficult to correctly implement the deduction limitation in accordance with Section 20 para. 1 no. 7 EStG, as exceeding the limit of EUR 500,000 was not recognised in good time.

The remuneration of a member of the management board exceeded the relevant limit of the deduction ban and, as a result of this ban not being taken into account, excessive business expenses were claimed for tax purposes.

The relevant legal question for the BFG was whether intentional or grossly negligent behaviour could be assumed from the given circumstances. This question arose in the context of the review of the legality of the assessment of a tax increase pursuant to § 29 para. 6 of the Act on Tax Offences (“FinStrG”).

Decision of the BFG

The BFG came to the conclusion that the complainant's behaviour must be classified as unusual and conspicuously careless, which leads to grossly negligent tax evasion.

In view of the fact that the limitation on deducting executive remuneration has been in force since 2014, but was not properly observed by the complainant up until 2021, the BFG interpreted this as gross negligence over a longer period of time. The intensive discussion on the interpretation of this provision and critical media coverage of the new regulation suggest that the complainant and its tax representatives were aware of the deduction limitation. The BFG considers the failure to ensure that the relevant data was available in the company in order to recognise the limit of EUR 500,000 and to implement the deduction limitation accordingly as an organisational failure.

In addition, the BFG found that the remuneration of one of the complainant's board members exceeded the relevant limit, which led to the application of the deduction limitation. In the opinion of the BFG, it was the responsibility of the management board to point out this excess and, as a representative of the complainant, to ensure that appropriate tax treatment was applied.


To summarise, it is essential to closely monitor the limitation in the tax deductibility of “management salaries”. In certain cases, particularly in the case of managers who perform various functions in different group companies, it will be necessary to obtain specific and detailed information in a timely manner, this even more in cases where data protection and confidentiality-related measures are taken.

Do you have additional questions?

Our tax-experts are here to help you with tax challenges and questions relating to compliance and the correction of tax errors.