We review two recent court cases with implications for the 30 percent allowance ruling for expats.

Update February 2010: Read The 30 percent ruling explained for an up-to-date explanation of the 30 pc ruling

Case I: supervisory board member

This is a case where a company and one of its supervisory board members applied for the 30 percent ruling.

The Belastingdienst (tax authorities) took the position that the 30 percent ruling could not be granted to this individual because under Dutch law statutory board members are working in a fictitious employment instead of a genuine employment.

The latter is defined as a business relationship in which the employee offers a service, receives payment and the employer is in a position of authority.

Under the old 35 percent ruling, which was based on a regulation from the Secretary of Finance, fictitious employment relationships were explicitly excluded from the 35 percent allowance ruling.

The 30 percent ruling replaced the 35 percent allowance ruling on 1 January 2001 in the Dutch Wage Tax Act. For the definition of what an employee is, the 30 percent allowance ruling refers back to the general definitions of an employee in the Wage Tax Act.

Since this general definition of an employee also includes employees in a fictitious employment, the tax court has now ruled that statutory board members can also qualify for the 30 percent allowance ruling.

This court case could lead to a situation where the 30 percent ruling cannot be denied to individuals working under a fictitious employment solely on the basis their activities do not constitute a 'genuine' employment.

This can, for example, relate to supervisory board members, trainees and individuals, assigned via a temporary employment agency.

It goes without saying that, in order to qualify for the ruling, these individuals also need to meet the other qualifying criteria, like being recruited from abroad, and having specific expertise that is not readily available in the Dutch employment market.

If an application for the 30 percent allowance ruling is now filed after all for an employee in a fictitious employment, the application will most likely not be filed within four months after the start of the Dutch employment.

Consequently, the ruling will not be granted retroactively. Instead, the ruling will be granted as of the first day of the month, subsequent to the month in which the application was made. The employee will consequently face a reduction on the total duration of the ruling (10 years) for his prior stay and / or employment in the Netherlands.

Case II: continuation of the ruling after termination of employment

The second case dealt with an individual who was granted the 30 percent ruling for his employment with company A. He left company A, and after a certain period he joined company B.

Under Dutch tax law, it is in principle possible to continue the 30 percent ruling, provided the new employment actually starts within three months after ending the previous employment (and provided the other qualification conditions for the 30 percent ruling are still met).

Company A was acquired by company B. The individual concluded an employment agreement with company B within the three month period, but started this employment beyond the three-month period.

The tax authorities took the position that the ruling could not be continued, as the three-month period had been exceeded. However, the Amsterdam tax court ruled that, in this particular case, the ruling can be continued. Crucial in this respect is the fact pattern, under which:
• It was clear that within the three-month period a contract was signed
• It already was clear upon termination of the employment with company A, that the individual would join company B;
• Discussions on terms and conditions of the employment, the vacation period as well as other circumstances caused the contract to only start after the four-month period.

This case was very factual. Therefore, it is in my view difficult to draw a general conclusion from this case.

However, it is obvious that the Court does not let the letter of the law prevail in this particular case. Therefore, this illustrates that the three-month requirement can also be considered to be met when for certain specific reasons the actual employment starts after expiration of this period.

It is important in this respect that the employment contract was signed prior to expiration of the three-month period. The reason for this is that the tax court looks at the purpose of this rule.

And the purpose of this rule is that in the view of the law makers, individuals who are unemployed for longer than three months apparently do not bring scarce specific expertise into the Dutch employment market.

The verdict of Amsterdam Court now shows, that in certain cases, the facts can lead to a conclusion that specific expertise does exist when a new employment was agreed upon and an employment contract was signed within the three-month period, but the actual employment started a little bit later. 

These two rulings were in favour of the taxpayers involved. It should, however, be noted that the authorities may take these cases to the Dutch Supreme Court.

Nino Nelissen is a tax lawyer, and managing director of Executive Mobility Group, assisting companies and its employees in managing international employee mobility.

[Copyright Expatica + Nino Nelissen]

Subject: 30 percent ruling