Dutch Tax Update

The 2013 Budget Bill or the so called Spring Deal has recently been approved by the Dutch Senate. This Budget Bill contains a number of measures which are intended to bring and keep the Dutch budget deficit at the EU required 3%. The Budget Bill measures will in principle be implemented on January 1, 2013.

One of these measures consists of an additional one time employer end levy of 16% over salaries over Euro 150,000 in 2013. This end levy will be due on March 31, 2013 and will be calculated over the 2012 wage. Please note that this end levy will be fully for the account of the employer and will have to be paid in addition to the “normal” wage tax which was already withheld and paid over the wages in 2012. Consequently the end levy can not be recovered from the employee and the employee is also unable to report the end levy in his income tax return as already withheld wage tax. Of course the end levy can be deducted from the profits on an corporate income tax level, the same way as regular wage tax is.

The end levy is calculated over the 2012 wage. Consequently there are not many ways to prevent or mitigate the end levy. One of the possible solutions, spreading the total wage over various Dutch group companies, is for example explicitly prohibited in the applicable legislation. In that case the wages from the various group companies are added up and the end levy will still be applicable. Additionally the legislation also contains a special provision which enables further repair measures in case of avoidance of this end levy. Please note in this respect, that the end levy will of course not be applicable for employees who have multiple unrelated employers and thus earn a total wage of over Euro 150,000.

In the light of the above, in principle, there are only two possible options left to prevent or mitigate this end levy:

·         The first option consist of, where possible,  postponing the grant and payment of certain wage elements until 2013. This could be done for example with bonuses, tax equalization payments or with commissions. However if a bonus or commission would  habitually be granted and paid out in 2012, the tax authorities may not accept this postponement for tax purposes, especially not when employer and employee have formally agreed to postpone the payment until 2013. Consequently, in order to successfully postpone the payment, the employee would simply have to condone the later payment. Please also note that the grant of the wage element must also be postponed until 2013. If the employee would already be entitled to the wage element in 2012, regardless of the actualy payment date, the wage element would already be subject to taxation in 2012.

·         The second option consists of a salary split with one or more foreign group companies. The ratio behind this is that, if the salary above Euro 150,000 is not (fully) subject to Dutch taxation, the end levy would in principle not apply. However before implementing a salary split, advice and tax calculations are needed and also the implementation of any split will involve costs with respect to payroll services and the filing of personal income tax returns abroad. Also a salary split will have to be be in accordance with the actual situation and the employee must consequently actually physically be working abroad. A salary split that only exists on paper will consequently not be accepted by the tax authorities.
Please note that, depending on the applicable tax treaty, a  salary split could also apply to board members of foreign entities, even when they do not physically perform their activities in the other country.

We are of course gladly willing to discuss the above with you in further detail or to discuss the possible solutions for individual employees. In case you have any questions or would like to plan a meeting to discuss this end levy, please do not hesitate to contact us.

Kind regards,
Gilianne Nelissen – Van der Leeuw

Luminous Tax Matters N.V.

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