The Dutch Supreme Court (Hoge Raad) on 22 June 2018 issued its judgment in a case concerning whether a severance package is to be regarded as an early retirement scheme (“regeling voor vervroegde uittreding”—RVU).
An RVU is a scheme or plan that has as its sole (or almost sole) purpose to provide one or more benefits to bridge the period between the end of employment and retirement or an earlier pension date. Since 2005, the Payroll Tax Act 1964 has discouraged such schemes by imposing a 52% tax on an RVU withheld for the employer, in addition to the normal tax withheld for the employee.
In the case before the Supreme Court, an employer requested that the Dutch tax authority rule that a scheme was not an RVU. The tax inspector rejected this request, and this finding was upheld by lower courts. The Supreme Court concluded that the decisive factor in assessing whether there is an RVU is whether the payments and provisions are intended to bridge or supplement the former employee’s income until the retirement date. The Supreme Court noted that the following factors are irrelevant in assessing whether a scheme is an RVU:
Because of this judgment of the Supreme Court, reorganizations that result in staff layoffs and that include a replacement or voluntary severance scheme are unlikely to be regarded as an RVU if the scheme is not intended to bridge or supplement the former employee’s income until the retirement date.
Read a June 2018 report prepared by the KPMG member firm in the Netherlands
© 2018 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.
The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.