Tax Plan 2012: Changes to payroll tax, remittance reductions, and social security 

On Budget Day, September 20, 2011, the Cabinet presented the following five bills to the Lower House: The Tax Plan 2012, the Charitable Contributions Act, the Act on the Implementation of Tax Incentives for Fuel Efficient Cars, the Act on Applying Penalty Rules to Allowances, and the Other Tax Measures Act 2012. We set out below the most significant changes proposed for payroll taxes, remittance reductions, and tax credits. The bills must still be debated in Parliament, which could result in amendments being made. We will start by discussing the relevant proposals in the Tax Plan 2012, and subsequently discuss the remaining bills.

The proposals are intended to take effect on January 1, 2012, unless another date (which is underlined) is expressly stated.

The Tax Plan 2012

1.     New rates 2012

* excluding national insurance contributions

2.     Vitality package

A ‘vitality package’ has been proposed to stimulate labor force participation. This package comprises the following measures:

Replacing the employment tax credit for older employees, and replacing the bonus for employees 62 years or older with an employment bonus

• The current income-related supplemental employment tax credit for employees 58 years or older will be abolished.
• As of January 1, 2013, there will be one single employment bonus for employees older than 60 years at the start of the calendar year. The employment bonus amounts to a maximum of EUR 2,350 and will, more than the current provisions, focus on older employees with a low income.
• The bonus for employees 62 years or older will be abolished as of January 1, 2013. It has been proposed that the percentages for this bonus in 2012 will be adjusted as follows:

 Introduction vitality savings scheme

• The Cabinet has proposed a new savings scheme to take effect as of January 1, 2013:
  the vitality savings scheme. Unlike the current life-span and employee savings schemes, the vitality savings scheme is an income tax regulation. The scope of this regulation includes all taxpayers with an income from current employment (employees, businesses, and recipients of income from other activities).
• The Cabinet considers the vitality savings scheme suitable for situations in which there is a temporary decline in income, for example: care leave, training, demotion, setting up an own business, or a temporary drop in the turnover of a self-employed individual.
• Contributions to a vitality savings scheme will be tax deductible in Box 1. Tax will only be levied upon withdrawal. The bank or insurer will withhold the tax at a flat rate of 42%. As regards the set-off against personal income tax, the taxpayer will, subject to conditions and dependent on the applicable marginal tax rate, either owe additional personal income tax or be entitled to a tax refund. This deduction will result in the filing of more personal income tax returns. In addition, the notional return on the accumulated balance will not be taxed in box 3.
• This tax relief will be limited to a maximum of EUR 20,000 (gross). Deductible contributions will be limited to a maximum of EUR 5,000 per year.
• The objectives of the savings scheme will not be restricted, as is the case with the life span and employee savings schemes. The participant is, up to and including the year in which they turn 61, not limited in the amount that can be withdrawn.
• Once the participant reaches the age of 62, a maximum amount of EUR 10,000 may be withdrawn per year. The underlying idea being to encourage part-time pensions and limiting early full-time retirement. This is in line with the coalition agreement which seeks to discourage early retirement. The balance must be withdrawn before the participant reaches the age of 65.

Special leave scheme abolished as of 2012

• The special leave scheme will be abolished. An ageing population and the need to keep the social security system affordable, means that Cabinet policy is aimed at encouraging older employees to continue working after they have reached the retirement age. A regulation that is primarily used for early retirement is at odds with that aim.
• As of 2012, the special leave scheme will remain available to participants that have a positive balance in their special leave scheme on December 31, 2011. As of January 1, 2013, only participants who reach the age of 58 before January 1, 2013 will be able to continue with the special leave scheme. The remaining participants will have their accumulated balance paid out as a lump sum, after deduction of payroll tax and set-off of the special leave scheme tax credit. Participants may also opt for a tax-neutral transfer of their total special leave scheme balance to the vitality savings scheme. Simultaneous participation in both schemes is not permitted.

Employee savings scheme abolished as of 2012

• The employee savings scheme will be abolished to finance the vitality savings scheme and the temporary reduction in real estate transfer tax from 6% to 2%. The final levy of 25% for which the employer is liable will therefore also be abolished. In practice, the employee savings scheme is considered a laborious regulation by employees, employers, and banks. In 2013, participants in the employee savings scheme may either withdraw their balance without triggering tax, or leave it in the scheme. In the latter case, they may continue to apply the exemption for employee savings in box 3. The transitional rule will end in 2016.

Reduction threshold deductibility educational expenses

• To encourage training, the threshold for the deductibility of educational expenses in box 1 will be reduced from EUR 500 to EUR 250.

3.     Extension voluntary participation in pension scheme

Currently a tax measure is available for former employees who wish to continue to participate in their pension scheme on a voluntary basis after the termination of their employment. The tax measure provides tax relief for this voluntary pension accrual for a maximum of three years after the termination of their employment. It has been proposed to extend this term from three years to ten years after dismissal. This is in line with the maximum term for voluntary continuation laid down in the Pensions Act. In addition thereto, the pensionable salary will be subject to a maximum after three years, based on current salary information, with an upper limit equal to the last pensionable salary earned in the period preceding the termination of employment. This amendment will be worked out in more detail in a decree amending the Payroll Tax Implementation Regulations of 1965 to be published later this year.

4.     Extension of the remittance reduction for education

The remittance reduction for education currently does not apply if such education takes place abroad. To remove this obstacle, the rule will be expanded as of January 1, 2012. The amendment means that certain variations of the remittance reduction for education will also be available to withholding agents that employ an individual who is training elsewhere in the EU or EEA and this training is comparable with a training in the Netherlands that qualifies for the remittance reduction. The withholding agent must be in possession of a certificate issued by the Ministry of Education, Culture and Science (“OCW”).

5.     Measures 30% ruling

The 30% ruling is a concession for employees coming to the Netherlands who are recruited from abroad and who possess specific expertise which is scarce on the Dutch labor market. The incoming employees may receive a tax-free allowance for the additional costs incurred by living outside their country of origin (extraterritorial costs). This allowance may also be set at a notional amount equal to 30% of their salary. As a result, a tax benefit is recognized as only 70% of the salary is subject to Dutch tax.

The tax plan proposes three important changes regarding the conditions for eligibility for the 30% ruling (see our earlier memo on this subject):

1.     Specific expertise test
The most important condition is that the incoming employee possesses a specific expertise that is scarce on the Dutch labor market. Under the current 30% ruling, this is assessed based on the facts and circumstances, with important factors being the employee’s education and work experience. Under the new 30% ruling, a salary threshold will be introduced: an incoming employee will only qualify for the ruling if the taxable annual salary, i.e. excluding the untaxed 30% allowance, amounts to at least EUR 50,619. This standard has been linked to the knowledge worker’s rule for obtaining a work permit. It concerns a salary standard for employees aged 30 or over.  

Doctoral students under 30 years of age studying at Dutch universities or foreign universities, who continue to work or start working in the Netherlands after their doctoral research will in future be eligible for the 30% ruling. Currently, they do not often qualify as an incoming employee because they were already living in the Netherlands at the start of their employment. A reduced salary threshold will apply for this group (an annual salary for tax purposes of at least EUR 26,605).

2.     Term of grant: extension of the reference period
The 30% ruling will be granted for a period of 10 years. If an incoming employee has previously lived or worked in the Netherlands, these earlier periods will be deducted from the period for which the 30% ruling is granted. Under the current 30% ruling, the reference period is limited to 10 years. Periods of stay or employment that ended more than 10 years ago are, in principle, not taken into account. Under the new rule, the reference period will be extended to 25 years. This change is primarily important for Dutch citizens, because they usually have not lived and worked outside the Netherlands for more than 25 years.

3.     Cross-border workers no longer eligible for the 30% ruling
Employees that live within a 150 kilometer radius of the Dutch border are no longer eligible for the 30% ruling. This new assessment qualification has been introduced to avoid Dutch citizens being displaced on the labor market in the border regions.
The exclusion of cross-border workers is important for employees from Belgium and the German border regions, because they are no longer eligible for the ruling.

Transitional rule
In principle, existing 30% rulings will be honored. The current 30% ruling allows the tax inspector, as of the sixth year of the term of the ruling, to request the withholding agent to substantiate why the employee should still be considered an incoming employee pursuant to the 30% ruling. If this re-assessment date falls after January 1, 2012, then the new conditions for specific expertise will apply, as will the condition prohibiting the employee having lived within a 150 kilometer radius of the Dutch border at the start of their employment. However, employees who, on January 1, 2012, had already applied the 30% ruling for longer than 5 years − thereby falling outside the abovementioned re-assessment date − are entitled to apply the 30% ruling for the remainder of the 10-year period. The term set for a 30% ruling granted before January 1, 2012, will not be amended in accordance with the new legislation after January 1, 2012. The extended reference period will therefore only apply to new situations.

6.     Adjustment R&D remittance reduction: reduction salary threshold first bracket

For budgetary reasons, the Promotion of Research and Development Act (“PRDA”) will be amended. The salary threshold in the first bracket will be reduced to EUR 110,000 in 2012 and only apply to that year (2011: EUR 150,000).

In addition, the percentage in the first bracket will be reduced to 42 (2011: 45). The percentage in the first bracket for start-ups is 60. The maximum R&D reduction will be increased to EUR 14 million in 2012 (2011: EUR 8.5 million).

7.     Work-related costs rules

The Tax Plan 2012 contains no proposals for the adjustment of the work-related costs rules. A first evaluation will be carried out in the fall, on the basis of which adjustments may be made to the work-related costs rules. These will be included in the Tax Plan 2013.

8.     The Uniform Definition of Salary Act

For technical reasons, the introduction of the Uniform Definition of Salary Act has been postponed until January 1, 2013. No amendments are intended.

The Charitable Contributions Act

It has been proposed to make the tax exemption for volunteers in the Payroll Tax Act of 1964 available to a broader range of institutions. As of January 1, 2012, the tax exemption for volunteers will apply to all public welfare institutions (Algemeen nut beogende instellingen, “ANBIs”), even those that are subject to corporate income tax. Volunteers that do not receive more than EUR 150 per month and EUR 1,500 per calendar year will not be considered employees of the ANBI.

This is in line with the intention of the Charitable Contributions Act, that aims to provide charitable organizations more opportunities to develop commercial activities.

Act on the Implementation of Tax Incentives for Fuel Efficient Cars

One of the focal points of the Cabinet has been to provide tax incentives for the purchase and use of fuel efficient cars. In the case of a company car, driving a fuel efficient car means a reduced addition to income for the private use of a company car as regards payroll tax and income tax. The success of the incentives has meant that the government is collecting considerably less tax.

In order to avoid a budget deficit on the one hand, and, on the other hand, to continue to focus on the original objective, i.e. to encourage only the use of very fuel efficient cars, the Cabinet intends to tighten its tax incentive policy as of July 1, 2012.

Addition payroll tax/income tax
The addition to income for the private use of a company car is in line with the tightening of the brackets in the Private Motor Vehicle and Motorcycle Tax Act (Wet op de belasting van personenauto’s en motorrijwielen, “BPM”).

The addition to income based on CO₂ emissions will be adjusted as follows for the period July 1, 2010, through 2015:

In addition to the tightening of the fuel efficiency limits pursuant to which a reduced addition may be applied, limiting the period in which the reduced addition is valid has also been proposed. Under current legislation, the tightening of fuel efficiency limits will only apply to cars of which the license plates were first registered after the tightening was implemented. Under the proposed system, the period during which a reduced addition percentage may be applied following a tightening of the fuel efficiency limits will be reduced to 60 months (the assumed average duration of a lease contract). At the end of every 60-month period an assessment will take place to determine whether the car is again eligible for a reduction of the addition percentage.

Cars with a CO₂ emission lower than 50 gr/km will be eligible for a zero rate for the addition effective from January 1, 2012, through 2015. A car whose license plate was registered during the period through December 31, 2015, and that is eligible for the zero rate addition, will keep this zero rate addition for a period of 60 months. For zero emission cars purchased before January 1, 2012, the zero rate addition will be extended to 2016.

Statement Exclusive Work-related Use of Van
As of January 1, 2012, an employee who has a van as referred to in the BPM at his disposal that is not used privately may request a 'Statement Exclusive Work-related Use of Van'. The request, to be filed with the tax inspector, must be made by the employee via the withholding agent.
Once the employee starts using the van privately, he must request the tax inspector, via the withholding agent, to cancel the statement. If the withholding agent suspects private use of the van, then it must inform the tax inspector. Rules will be drawn up regarding the situations in which the employee and the withholding agent must inform the tax inspector.

The Dutch Revenue’s oversight will include the use of camera surveillance. If the tax inspector suspects private use of the van, he may ask the employee and the withholding agent to provide proof that the trip in question was business-related. If they fail to convince the tax inspector that this was the case, the employee will receive an additional assessment for payroll tax. This assessment will be imposed on the withholding agent if it was aware that the employee had used the van privately, and if the withholding agent failed to immediately notify the tax inspector that the employee had not yet requested that the statement be canceled.

Further rules will be drawn up governing the issuing and cancellation of a Statement Exclusive Work-related Use of Van, and the confirmations of receipt sent by the tax inspector.

Other tax measures 2012

1.     Requests for annual salary details

As of January 1, 2012, the temporary rules regarding requests for salary details will become definite. A substantive amendment is not envisaged.

2.     Salary in, salary for

The temporary 'salary for' rule will become permanent. The rule provides for salary that is paid in 2012 but relates to earlier salary periods to be allocated to the period in 2012 in which they were paid, on the condition that the withholding agent’s application thereof is consistent.

3.     Remittance reduction for education (clarification)

If the withholding agent and the approved work placement company are not the same entity, the remittance reduction can be applied as if an assignment contract had been concluded between the withholding agent and the approved work placement company. This contract stipulates that the work placement company is entitled to the benefit arising from the remittance reduction. The rules apply to assignment contracts that commence on or after January 1, 2012.

4.     Obligation to provide information: Statement No Private Use of Company Car

The Cabinet has proposed imposing an offense penalty for failure to meet the obligation to provide information in cases including that of the Statement Exclusive Work-related Use of Van and the Statement No Private Use of Company Car. The offense penalty will amount to a maximum of 100% of the payroll tax that had not been levied.

5.     Offense penalty to follow default penalty in the case of new objections

On the basis of case law, a tax penalty cannot be imposed twice for the same fact. This follows from the ne bis in idem principle. Nevertheless, it has been proposed that the tax inspector be given the possibility to impose an offense penalty after a − generally automatically generated − default penalty has been imposed, if 'new objections' are present that give rise to intentional misconduct or gross negligence. The earlier default penalty will then be set off against the offense penalty. This provides for an alternative to instigating criminal charges in such cases. It is expected that the proposed rule will apply primarily with regard to penalties for the full or partial non-payment or late payment of a tax payable on return, for example payroll tax.