Options exercised after departure from the Netherlands: taxed, but 30% facility does not apply | Deloitte

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Options exercised after departure from the Netherlands: taxed, but 30% facility does not apply

The Netherlands Supreme Court argues that the 30% facility can no longer be applied if options are exercised after departure from the Netherlands, or after expiry of the term of the facility.

3 October 2017

Options exercised after departure from the Netherlands

A US based parent company seconded employees to the Netherlands. During their secondment these employees used the 30% facility. Then the parent company awarded options on its own shares to these employees. The options vest annually for 25%. After this vesting, all of the employees except one returned to the US, after which they exercised their option rights. One of the employees continued to live in the Netherlands, but exercised the options after expiry of the 30% facility.

The employer remitted payroll tax on the option benefit. For so doing, it calculated the benefit attributable to the Netherlands based on the “Allocation Decree” (allocatiebesluit) issued by the Dutch State Secretary for Finance on 11 February 2002. This decision permits the Netherlands to tax the option benefit realised, multiplied by the following factor:

The number of working days between granting and vesting, over which the Netherlands has power to tax the employee’s normal salary /the total number of working days between granting and vesting.

For reasons of caution, the employer did not apply the 30% facility in the payroll records, but objected and subsequently appealed against the payment made. It is disputed whether the Netherlands effectively has power to tax and, if so, whether the 30% facility applies with respect to the option benefit.

Supreme Court judgment

The Supreme Court maintains the levy of payroll tax. The Netherlands has power to tax part of the option benefit, calculated using Allocation Decree. The 30% facility does not apply if options are exercised after departure from the Netherlands, or after the 30% facility has expired. The law provides for a delay of one month. The Supreme Court did not uphold the interested party’s argument that the option benefit was already received upon vesting, when the employees still lived in the Netherlands.

The interested party further argued that when the options were exercised the employees still worked for the same employer that had seconded them to the Netherlands at the time. Hence, the employment was not terminated following departure from the Netherlands. The interested party argued that the 30% facility would thus remain applicable. After all, it has not been stipulated that it should concern employment in the Netherlands. But the Supreme Court argued that was what the legislature effectively meant. This should have been stated more clearly in the law.

30% facility only applicable to salary from present employment

The Supreme Court did not discuss the AG’s statement that option benefits should qualify as salary from previous employment. From this we gather that the Supreme Court that does not follow that part of the AG’s opinion.

The 30% facility can only be applied to salary from present employment. According to case law, it is decisive for this qualification whether the payment “is closely related to certain work performed or to work performed in a certain period and constitutes a direct reward for that”. If a payment is only more generally caused by work performed in the past, it qualifies as salary from previous employment. The present case is about conditional option rights of which 25% vested annually after granting, provided the respective employees did not leave the company. We argue this can be qualified as a subsequently received benefit from present employment.


Source: Supreme Court 22 September 2017, no. 16/04864, ECLI:NL:HR:2017:2420

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