16% crisis levy may be contrary to European law

Publication date 19 February 2013

The 16% crisis levy must be reported in the payroll tax return for March 2013. Employers must remit this levy in April 2013, if and to the extent that an employee’s salary for 2012 exceeded EUR 150,000 (Section 32bd(1) Payroll Tax Act 1964). We consider that a recent judgment has provided grounds for arguing that the crisis levy, which employers have to include in their payroll tax, may be contrary to European law.

Clarification
On February 13, 2013, the Court of Appeals Arnhem-Leeuwarden rendered judgment in proceedings initiated by KPMG Meijburg & Co. In its judgment, the Court ruled that the 30% tax rate owed by employers on excessive severance payments pursuant to Section 32bb Payroll Tax Act 1964 is contrary to Article 1 of the First Protocol of the European Convention on Human Rights; the reason being that there are no grounds ? or no convincing grounds ? to justify the substantive retroactive effect of this legislation. We expect the Deputy Minister of Finance to appeal this judgment before the Supreme Court.

The plans to introduce a one-off 16% employer´s crisis levy in respect of salaries paid in 2012 that exceeded EUR 150,000 were made public with the Kunduz Agreement (reached in mid-April 2012). Therefore, also in this case, it can be argued that a substantive retroactive effect applies to salaries paid in the period January 1, 2012, up to the publication of the Kunduz Agreement in April 2012. Because bonuses are usually paid in the spring, a large number of employers stands to gain from this argument, as this would mean that bonus payments made in the above period could be exempted from the tax base.

The Dutch tax authorities will no doubt take a different position on this. Employers who do not unreservedly wish to accept the crisis levy will therefore need to carefully consider which approach and what action is most appropriate for their situation. There are different options available. KPMG Meijburg & Co would be pleased to provide any assistance needed.