Until January 1, 2003, the Dutch Wage Tax Act included a gift exemption. Under the gift exemption, payments did not qualify as taxable wages when they were paid to celebrate public holidays, an anniversary or the anniversary of the employer or other personal anniversaries of the employees to a maximum of € 136 (NLG 300) per year.
In a case before the Court of Appeal in Den Bosch, an employer had paid a year-end allowance to his employees in December of the years 1998 up to and including 2002. On these allowances the so-called gift exemption was applied. As of 1999, the employer determined that the amount of the allowance depended on the sick leave absence of employees. This was recorded on January 5, 1999.
Following a wage tax audit, the inspector imposed an additional wage tax assessment because he felt that the allowances in the period from January 1, 1998, to December 31, 2002, qualified as taxable wages and the gift exemption could not be applied. In dispute was whether the additional assessment was correctly imposed by the inspector.
The Court in Arnhem and, subsequently, the Court of Appeal in Arnhem, decided on the basis of the case law that when the employer paid the allowance under the gift exemption, there cannot be an obligation to pay these allowance. It must be a gift. Both the Court and the Court of Appeal decided that the employer had no obligation to pay the allowances, so the allowances could be paid under the gift exemption (without withholding of wage taxes).
Following an appeal, the Dutch High Court determined that the employer had an obligation to pay the year-end allowance when the employee was not sick in 1999. For the years 2000 to 2002, the Supreme Court assigned the case to the Court in Den Bosch.
The Court of Appeal in Den Bosch decided that the employee had a conditional right to receive an allowance with a maximum of € 136 (NLG 300) for the years 2000 to 2002. Subsequently, the employer had the obligation to pay the allowance, and the gift exemption was not applicable. Therefore, the additional assessment was correctly imposed by the inspector with respect to years 1999 to 2002 .
The gift exemption was applicable in the year 1998, therefore the additional assessment will be reduced for the year 1998.