When workers from abroad are assigned to the Netherlands, and they meet certain qualifications, they may be eligible for the 30%-ruling. This means that the employer may provide a tax-free allowance for extraterritorial costs of the employees representing 30% of the remuneration in respect of the Dutch employment, including the reimbursement for extraterritorial costs. The ruling is valid for a maximum period of 120 months and may be applied to income in respect of the employment in the Netherlands.
The Court of Den Bosch ruled in a recent case regarding a U.S. employee who worked in the Netherlands from 2002 to 2005 and benefitted from the 30%-ruling. During his stay in the Netherlands, stock options were granted to him, which he exercised in 2006, after he had returned to the United States. The employer, when paying the option benefit, withheld wage tax without applying the 30%-ruling. The employee, therefore, filed an objection to this, but the tax inspector rejected this objection and stated that the 30%-ruling was not applicable because the employment in the Netherlands had ended. The employee, however, took the position that the 30%-ruling did apply because the benefit was a result from his “Dutch” period. After the Court ruled in favour of the employee, the tax inspector appealed.
In appeal, the Court of Appeal of Den Bosch also decided in favour of the U.S. employee. Despite the fact that the employee received the stock option benefit after he had returned to the United States, the Court of Appeal ruled that the 30%-ruling may be applied, as the option was granted in respect of the employment in the Netherlands. Consequently, 30% of the option benefit realized by the U.S. employee is exempted from taxation.
The Dutch tax authorities have lodged an appeal with the High Court against the decision of the Court of Appeal.