1. Crisis tax is not incompatible with ownership right, Article 1 of the First Protocol to the ECHR
On 29 January 2016, the Supreme Court ruled in two judgments that the crisis tax, including the extension, is not incompatible with the ownership right of Article 1 of the First Protocol to the European Convention for the Protection of Human Rights and Fundamental Freedoms (Article 1, FP ECHR).
In 2013, withholding agents (employers) had to pay 16% in crisis tax on salary they had paid in excess of EUR 150,000 per employee on income from present employment in 2012. The legislature had initially proposed the tax as ‘non-recurrent’, but then extended it by one year. According to the legislature, the measure was necessary in order to reduce the budget deficit.
The Supreme Court has ruled that the crisis tax is not incompatible with the statutory system of the wage withholding tax, does not constitute impermissible discrimination with respect to employers that do not employ employees with salary of more than EUR 150,000 and also does not draw a (prohibited) distinction between employees or with respect to entrepreneurs or recipients of income from other activities. The Supreme Court rules as follows with regard to the question whether the retrospective effect that has been given to the implementation of the crisis tax constitutes an unauthorized infringement of the peaceful right to one’s possessions (Article 1, FP ECHR).
The Supreme Court considers that citizens cannot reasonably assume that tax rates will remain unchanged. However, until the crisis tax was announced, wage withholding agents could in good faith be entitled to expect that they would not be taxed more heavily for salary received by their employees in that period than under the legislation that applied at that time. As a result, there would be no ‘fair balance’ as required by Article 1, FP ECHR, unless there were specific and urgent reasons due to which the legislature could override these expectations. According to the Supreme Court, the legislature’s interest in reducing the budget deficit in view of the (then) serious nature of the problems relating to the budget, and taking account of the simplicity and the feasibility of the measure, should take priority. The extension of the crisis tax is also not incompatible with Article 1, FP ECHR.
Consequences of the judgments
The judgment on the ‘first crisis tax’ concerned an individual case, but it has consequences for current (test) cases and proceedings against the crisis tax. The same arguments also play a role in current test cases against the crisis tax. One can thus very justifiably expect the Supreme Court to rule against taxpayers in those cases in the same way. Only in individual cases could there possibly be an individual and excessive burden that is incompatible with Article 1, FP ECHR. The Supreme Court has no standard for this. The burden of proof, i.e. that there is an individual and excessive burden, lies with the interested party and would appear to be significant in view of earlier decisions by courts and courts of appeal.
2. Belgian wages of cross-border worker may not be recalculated with application of the 30% ruling
The Netherlands-Belgium tax treaty provides a compensatory scheme for residents of the Netherlands who (also) work in Belgium and who are faced with a higher tax burden in Belgium and/or the loss of the advantage of deductible expenses. A shadow calculation is made in order to establish the disadvantage. The compensation amounts to the difference between the Dutch and Belgian tax and national insurance contributions that are actually due and the Dutch tax and national insurance contributions that would be due if the wage would be earned and taxed in the Netherlands. The question in a case instituted by a resident of the Netherlands, who worked in the Netherlands and Belgium and who used the 30% facility, was whether the 30% ruling could be applied to the Belgian part of the wage in making the shadow calculation.
The Supreme Court follows the conclusion of the Advocate General. In calculating the compensation, the 30% ruling may not be applied to the Belgian wage in the shadow calculation. This means that in the shadow calculation the Dutch tax due will be higher and the disadvantage to be compensated will be lower (see also our earlier flash of 14 October 2015, L&A E-Flash 147).
3. Three-month requirement in case of changing employers
If an employee who is assigned the 30% ruling changes employers, the 30% ruling can be continued at a new employer subject to conditions. One of these conditions is that the period between the end of the employment and the start of the new employment is not more than three months. If this period is longer, the scarce, specific expertise argument is compromised. An Indian employee, who could not find a new employer within the period of three months (partly due to personal reasons), believed that a longer period should apply under certain circumstances. One of the arguments was that the period of three months was only an indication and that the 30% ruling could be continued if the scarce and specific expertise of the employee is shown in other respects.
The Advocate General concludes that an exception to the period of three months can only be made in exceptional cases, for example if the employee was not able to search for a new job for some time due to force majeure. This was not the case in these proceedings.
The Supreme Court concurs with the Court of Appeals and the Advocate General that the ruling leaves no room for making it plausible in another way that the interested party has scarce, specific expertise and therefore continues to be eligible for application of the 30% ruling in cases where the three-month period is exceeded. In short, the Supreme Court takes the view that the Court of Appeals has ruled correctly that the interested party is not entitled to continuation of the 30% ruling.