The Amsterdam Court of Appeals, in a case concerning whether the allocation of bonus shares falls under the fixed exemption of the work-related costs rules, held that the allocation of bonus shares to a select group of employees was “unusual” and therefore not within the standard criterion under generally accepted standards for purposes of the work-related costs rules.
An employer had for several years offered a share plan to some board members, whereby they could buy shares in the company. If these employees were still employed after three years, they were awarded a number of shares for “nil” consideration. The tax on these shares for nil consideration was paid by the employer.
As of 2012, the employer switched to the work-related costs rules and, in 2012 and 2013, regarded the benefit arising from the shares awarded for nil consideration as part of the final (tax) levy for the purposes of the work-related costs rules. Various other salary benefits, such as Christmas gifts and staff activities, were also treated as part of the final levy in 2012 and 2013. To the extent that the fixed exemption in the work-related costs rules of 1.5% in 2012 and 1.4% in 2013 were exceeded, the employer reported and remitted a final levy of 80%.
The Dutch tax authorities disagreed with this treatment, and imposed supplementary assessments on the basis that the awarded shares could not pass the standard practice criterion (gebruikelijkheidscriterium) of the work-related costs rules, particularly in view of the amount of the provisions.
In proceedings before the District Court Noord-Holland, the lower court held for the employer and concluded that the mere fact that this matter concerned provisions with a “substantial” value did not prevent them from falling under the work-related costs rules. The Dutch tax authorities appealed this judgment.
The Amsterdam Court of Appeals noted that commonly held views must be taken into account when interpreting whether a reimbursement and/or provision must be designated as taxed or exempt salary under the work-related costs rules. The work-related costs rules must be interpreted in such a way that only reimbursements and provisions of a purely business or mixed nature (zwak loon or “weak wages”) can be included under the rules. The appellate court further concluded that the efficiency threshold (doelmatigheidstoets) of €2,400 per employee, as applied in practice by the Dutch tax authorities, was in line with the basic assumptions of the standard practice criterion.
The appeals court held that for purposes of the work-related costs rules, the allocation of large bonuses—i.e., bonus shares to a select group of employees—would generally be considered unusual. According to the court, this matter involved wages of a purely remunerating nature that were not only substantial but also not reimbursements or provisions of a purely business or mixed nature. The combination of these factors meant that there was an unusual designation, according to generally accepted standards, for the purposes of the work-related costs rules.
With the judgment, the appeals court clarified when a reimbursement or provision is customary or unusual and whether the reimbursement or provision can be designated as part of the final levy under the work-related costs rules.
Read a January 2018 report prepared by the KPMG member firm in the Netherlands
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