Bonus shares outside the scope of the work-related expenses scheme
The Amsterdam Court of Appeal argues that the work-related expenses scheme does not apply to bonus shares granted to a select group of employees; the shares are taxed at the level of the individual employees.
7 february 2018
Work-related expenses scheme
In 2012, a company granted parcels of shares at a value of around EUR 430,000 to seven of its employees for no consideration (bonus shares). In 2013, bonus shares totalling EUR 76,000 were granted to four employees. The employer qualified the net value of the shares as a final levy component and applied the work-related expenses scheme. Since the discretionary margin for the respective years (1.4% and 1.5%, respectively, of the aggregate amount of taxable wages on which payroll tax is payable by employees) was exceeded, the employer remitted an 80% final levy over part of the value.
However, the Inspector argued that a parcel of shares that has been granted for no consideration cannot be brought under the work-related expenses scheme as a final levy component. He therefore imposed individual additional assessments on the net value of the granted shares, less EUR 2,400 per employee.
Standard practice criterion
Under the work-related expenses scheme, employers can designate payments and benefits as final levy components and charge these to the discretionary margin (also called fixed margin or fixed tax free work-related expenses allowance). Employers must pay an 80% final levy insofar as the value of all designated final levy components in any calendar year exceeds the discretionary margin. Final levy components that are within the discretionary margin remain untaxed, provided employers meet the standard practice criterion. This means that the designated payments and benefits may not deviate from that which is customary in similar circumstances by more than 30%. In other words: it should be customary that employees receive such payments or benefits of that value tax-free and that the employer pays the payroll tax due. The Tax Administration in any case considers payments, benefits or provisions capped at EUR 2,400 per person to be customary. The 30% deviation does not apply to this amount.
Parcels of shares for no consideration
The Amsterdam Court of Appeal Amsterdam determined that parcels of shares that have been granted for no consideration constitute pure pay. Qualification of such pure pay as work-related expenses is not compatible with the rationale of the work-related expenses scheme. The Court of Appeal argued that, by introducing the work-related expenses scheme, the legislature did not envisage to change the system of free payments and benefits implemented. The sole purpose of this scheme is to reduce the administrative burden for employers. For this reason the work-related expenses scheme should only concern remuneration components for which it is socially acceptable that they are taxed at a lower rate or not at all. This obviously is the Court of Appeal’s interpretation of the standard practice criterion.
For this employer, the combination of a pure reward component of a considerable amount which, moreover, had been granted only to a select group of employees, leads to the conclusion that the standard practice criterion has not been met. The Court of Appeal further considered that the fact that the employer paid 80% final levy over part of the value of the shares (i.e., the part exceeding the discretionary margin) instead of the table rate of 108.3% over the full amount, is another indication that it may involve rate arbitration and improper use of the work-related expenses scheme. The Court decided in favour of the Inspector.
Source: Court of Appeal Amsterdam 25 January 2018, no. 16/00421, ECLI:NL:GHAMS:2018:169