In legal proceedings initiated by Meijburg & Co before the District Court of Noord-Holland concerning the applicability of the work-related costs rules, the District Court has ruled in favor of the taxpayer. The proceedings dealt with the following case: an employer had for several years been offering a share plan to a number of directors, 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 a nil consideration. The tax on these shares for a nil consideration was paid by the employer. As of 2012, the employer switched to the work-related costs rules and in 2012 and 2013 had regarded the benefit arising from the shares awarded for a nil consideration as part of the final levy for the purposes of the work-related costs rules. In 2012 and 2013 various other salary benefits were also treated as part of the final levy, such as Christmas gifts and staff activities. To the extent that the fixed exemption in the work-related costs rules of 1.5% and 1.4% respectively was exceeded, the employer reported and remitted a final levy of 80% in 2012 and 2013. The Dutch Tax and Customs Administration (DTCA) did not agree with this and imposed supplementary assessments, because in its opinion the awarded shares could not pass the standard practice criterion of the work-related costs rules, in particular because of the amount of the provisions.
District Court judgment
The proceedings dealt with the question whether the shares awarded by the employer for a nil consideration could be designated as part of the final levy as referred to in Section 13(1), introduction and under (f) of the Payroll Tax Act 1964. The District Court of Noord-Holland has now ruled that the mere fact that this concerns provisions with a ‘substantial’ value is not sufficient to conclude that the provisions cannot fall under the work-related costs rules. What needs to be established in this respect is what is usual in similar circumstances, so that it can then be assessed whether this significantly (30%) deviates from this.
According to the District Court, the DTCA has entirely failed to make clear which situation this is being compared with. Even the fact that, according to the DTCA the efficiency threshold of EUR 2,400 is generally accepted by employers, does not mean that the DTCA has provided the required evidence. This also applies to the DTCA’s assertion that a potential tax rate advantage plays a role in the assessment of what is customary. At the time of publication of this judgment, it is still not known whether the DTCA will appeal this judgment.
As far as we are aware, this is the first judgment on the work-related costs rules and the standard practice criterion contained therein. In this respect, the judgment has indicated that the burden of proof for what is not standard practice under the work-related costs rules rests on the DTCA. The DTCA will have to present more arguments and provide a better substantiation than only the argument that a provision or reimbursement is not customary and/or that the designation under the work-related costs rules results in a tax rate advantage for employees. It also remains to be seen how the limit of EUR 2,400 per person per year, as included in the Payroll Tax and Social Security Contributions Manual, should be perceived.