On 12 February 2026 in Berlin and 18 February 2026 in Vienna, Germany and Austria signed a consultation agreement under the Austria–Germany Income and Capital Tax Treaty to clarify the interpretation and application of article 18 to pensions, annuities and similar payments. The consultation agreement provides guidance on the tax treatment of pension payments made by German public sector supplementary pension institutions and similar municipal or church-based schemes to residents of Austria. The agreement entered into force on 19 February 2026 and applies to all cases still open at the time of signing.1,2
WHY THIS MATTERS
The consultation agreement provides guidance on the tax treatment of pension payments made by German public sector supplementary pension institutions (such as the Versorgungsanstalt des Bundes und der Länder (VBL) and similar municipal or church-based schemes) to residents of Austria. For global mobility and payroll teams, this clarification is relevant when managing cross-border retirees or current employees who accrue pension rights in Germany’s public sector but reside or plan to reside in Austria.
By confirming that such pensions are to be taxed exclusively in the state of residence (Austria) and not in Germany, the agreement reduces the risk of double taxation, simplifies tax compliance for both employers and mobile employees, and provides greater certainty for tax planning and payroll withholding procedures. Organizations with internationally mobile public sector employees or retirees may need to adjust administrative processes and communication with affected individuals to reflect the clarified tax treatment.
Key Highlights
The consultation agreement, effective 19 February 2026, clarifies the taxation of certain German public sector supplementary pension payments to Austrian residents under the bilateral tax treaty. This measure responds to practical uncertainties regarding the nature of these pensions and the respective taxing rights of Austria and Germany.
- Scope of agreement: Applies to pensions and similar payments from the German Versorgungsanstalt des Bundes und der Länder (VBL) or from municipal/church supplementary pension schemes to persons resident in Austria.
- Legal basis: Concluded under article 25(3) (Mutual agreement procedure) of the Austria–Germany Income and Capital Tax Treaty (2000), as last amended by protocol in 2023.
- Characterization of pensions: Clarifies that these pensions are neither statutory social security pensions nor public service pensions but are considered occupational (supplementary) pensions under private or collective agreement law, with contributions split between employer and employee.
- Allocation of taxing rights: Such pension payments are taxable only in the state of residence under article 18(1) and (4) of the treaty.
- Retroactive application: The agreement applies to all relevant cases open at the time of signing, providing certainty in these cases.
KPMG INSIGHTS
In light of the changes, organizations with employees or retirees receiving VBL or similar German supplementary pensions might wish to consider:
- Review whether employee and employer contributions to these supplementary pension schemes have been correctly treated for Austrian tax purposes (e.g., deductibility, payroll withholding implications).
- Update internal guidance on the tax treatment of German public sector supplementary pensions for mobile employees.
- Communicate the clarified treaty allocation to affected individuals to support accurate compliance and avoid unnecessary tax filings or double taxation concerns.
- Check that payroll, shadow payroll and year‑end processes reflect the exclusive Austrian taxation right confirmed by the consultation agreement.
If assignees and/or their programme managers have any questions or concerns about the scope of the update, its application and potential impacts, and appropriate next steps, they should consult with their qualified professional or a member of the GMS team with KPMG in Austria (see the Contacts section).
ENDNOTES:
1 (In German) Bundesfinanzministerium der Finanzen, “Konsultationsvereinbarung bezüglich Rentenzahlungen der Versorgungsanstalt,” published on 19 February 2026.
2 (In German) Findok, “Konsultationsvereinbarung zu Zweifelsfragen hinsichtlich der Auslegung,” published on 22 December 2023.
Contacts
Disclaimer
The information contained in this newsletter was submitted by the KPMG International member firm in Austria.
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