Recent conclusions of Advocate General on 30%-ruling impacting expatriates
The 30% ruling is a fiscal facility for foreign employees who have specific skills or expertise, which are scarce in the Dutch labour market, who come to work in the Netherlands and who meet certain other conditions. Under Dutch law expatriates working in the Netherlands may be entitled to tax-free compensation equal to 30% of their gross remuneration.
On 29 September 2015 the Advocate General to the Dutch Supreme Court published his conclusions in 4 legal proceedings on the 30%-ruling:
1. Distance: 150 km requirement
Under current law employers may pay a fixed tax-free allowance of up to 30% of salary to expatriate employees who, for at least 16 of the 24 months before their employment in the Netherlands, were normally resident more than 150 kilometres from the Dutch border.
The European Court of Justice had ruled that imposing a 150 km requirement is allowed if the 30%-ruling does not result in a systematic overcompensation of extraterritorial expenses actually incurred (that is, expatriates receiving more than the actual total of their extraterritorial expenses). The Advocate General concluded that, although certain groups of incoming employees have been overcompensated, there has been no systematic and clear overcompensation of the group of incoming employees as a whole. If the Supreme Court follows this recommendation, this means that the 150 km requirement will continue as it is.
2. Duration: Reduction rule
The maximum duration of the 30% ruling is eight years, any period of stay or employment in the Netherlands over the last 25 years will be used to reduce the maximum duration. Only previous periods that ended more than 25 years prior to the commencement of renewed employment in the Netherlands will be disregarded.
The Advocate General concluded that the reduction rule of the 30%-ruling is not in conflict with the free movement of employees and discrimination articles of applicable treaties. Existing case law of the Supreme Court on the 10-year period (reference period in the past) is still applicable. The 25 years reference period will survive as well, if the Supreme Court follows the Advocate General’s advice.
3. Compensation rule: Tax treaty Netherlands-Belgium
Dutch residents (also) working in Belgium are entitled to compensation for higher Belgian tax and/or the loss of tax deductible items, under certain circumstances. According to the Advocate General , for the calculation of such compensation the 30%-ruling cannot be applied on the Belgian (part of the) income. If the Supreme Court follows this advice, Dutch residents claiming tax compensation under the Dutch-Belgian tax treaty will receive lower compensation.
4. Changing employer: 3 month-period
When changing employer, an employee can, under certain conditions, continue the 30%-ruling under new employment if the new employment contract is concluded within three months from the termination of the former contract. The Advocate General confirms that the three month-period is a strict term, unless exceptional circumstances justify a longer period (e.g. an employee cannot search for a new job for some time due to force majeure).
It’s now up to the Supreme Court to take a final decision.
On 14 August 2015, the District Court of Zeeland-West Brabant ruled that the 30%-ruling does not apply to salary paid to an employee who, following termination of employment, is no longer required to work in the period up to the official date of termination of the employment contract (“garden leave”).
No appeal has been filed against this judgment.
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