In our Compensation & Benefit Insight of October 2018, we informed you on the proposed changes to the Dutch 30% expatriate tax facility. The amendments to the law which we announced in that Insight have now been implemented, and therefore we are pleased to provide you hereby with an additional update.
Changes to the 30% facility
As of 1 January 2019, the 30% facility is only granted for a maximum period of five years. Prior to 2019, the maximum term was eight years instead of five. To mitigate the negative tax consequences for existing cases to a certain extent, transitional rules have been introduced for individuals whose 30% facility was granted before 1 January 2019.
According to these transitional rules, there are no changes to the maximum term of 30% facility grants with an end date in the years 2019 and 2020. If the original end date for the facility lies in the years 2021, 2022 or 2023, the facility will in principle remain applicable up to and including 31 December 2020. Finally, the term of 30% facility grants with an original end date in the years 2024 and beyond is reduced by three years. The following table shows how the rules work out in the various scenarios possible:
|Original end date of facility||Revised end date|
|2019 or 2020||Unchanged|
|2021,2022 or 2023||31 December 2020|
|2024 or later||3 years less the original end date|
Complexities in case of transfer of 30% facility to a new employer
As you may be aware, a new 30% facility request should be filed with the Dutch tax authorities in case an employee changes from one employer to another. If the previous (original) 30% facility was granted prior to 1 January 2019, the Dutch tax authorities will typically issue a new 30% facility with an end date which is equal to the original end date (i.e.: without applying the abovementioned revised end dates).
Especially in this type of situation, it is important for the employer to ensure that the correct end date (i.e. in accordance with the overview above) is applied in the company payroll. We understand that the Dutch tax authorities may start amending the end dates in accordance with the overview above at some point in the future, but so far no definite decision has been published in this respect.
Objection against the reduction of the duration period?
As of the final quarter of 2018, the Dutch tax authorities have proactively been sending notification letters to employees and employers on the term reduction of the 30% facility. We understand that certain advisors currently encourage their clients to lodge objections against these notifications, based on the standpoint that a so-called legitimate expectation was raised on the 8-year term of 30% rulings granted prior to 1 January 2019.
Baker McKenzie feel that the chances of success for such objection are quite low. For instance, it is questionable whether the law even offers the possibility to lodge an objection to such a notification letter, and also whether a taxpayer may invoke the principle of legitimate expectations at all for a law change as currently at hand. For this reason, we have refrained from suggesting that our clients lodge this type of objections. Naturally, you may well decide to do so after all, e.g. if you have a different perspective on the chances of success of such proceedings.