March 2015
HR and tax alert
Netherlands
ECJ issues ruling on the availability of the Dutch 30% facility
for those living within 150km of the Dutch border
Executive summary
On Tuesday 24 February 2015 the European
Court of Justice (ECJ) passed judgment on
whether the 150 km distance criteria for the
Dutch 30% facility contravenes European
law. The ECJ ruled that in principle the 150
km distance rule is not contrary to European
law, but this is subject to further analysis on
whether the economic rationale behind the
policy is valid. This analysis is to be
undertaken by the Dutch Supreme Court.
Employers of employees who do not meet
the 150 km criteria should consider applying
for the facility and appealing against any
decision to reject the application. This may
help to secure the relief retrospectively
should the criteria eventually be proven to
contravene the law.
Background
Expatriates sent to work in the Netherlands
may qualify for a special tax ruling, known as
the 30% facility. The 30% facility provides
tax benefits to employees with specific
expertise who are recruited from abroad.
The main benefit of the 30% facility is a tax
free allowance for certain assignee
relocation costs up to 30% of current
employment income. Therefore only 70% of
the salary is taxed and the employee may
receive up to 30% of their remuneration tax-
free.
One of the conditions for the 30% facility is
that the employee must have resided in an
area more than 150 km from the Dutch
border for more than 16 months of the 24
months prior to starting the Dutch
employment. This means that employees
living within 150 km and often referred to as
“frontier workers” are typically excluded
from the 30% facility. For example, Belgium
is completely covered by this distance.
There is an economic rationale for the 150
km criteria which is the assumption that the
employee living further than 150 km from
the Netherlands will need to relocate and
incur associated costs: for these cases the
30% facility remains available as a way to
provide tax relief for these relocation costs.
However, so called “frontier workers” who
live within 150 km do not need to relocate
and are able to commute between their
home and place of work rendering them not
eligible for the fixed allowance of 30% of
their taxable salary. Instead, they can
recover their costs tax free using alternative
reliefs.
Lower Dutch courts have interpreted the
compatibility of the 150 km test with EU law
differently. Several court cases are still
pending and the Dutch Supreme Court has not confirmed a final decision on the
matter, but submitted the questions to the ECJ.
The decision of the European Court of Justice
The ECJ had not provided a definitive verdict on the issue raised. They had
concluded that it is now the responsibility of the Dutch Supreme Court to take the
steps necessary to determine whether the flat rate of 30% allowance is in
reasonable proportion to the extra costs incurred by incoming workers due to their
temporary employment in the Netherlands. If so, then the exclusion of crossborder workers living within the 150 km zone is not discriminatory and therefore
not contrary to EU law. Either these workers do not incur such costs or their costs
are reduced because it is deemed they can commute.
Should it be established that the 30% tax-free allowance amounts to significantly
more than the costs in question actually incurred then the application of the 150
km distance criteria could be deemed contrary to EU law on the grounds that the
economic rationale for the law is invalid. Should this prove to be the case, then the
30% facility must be available to employees living within the border region.
Next steps
The Dutch Supreme Court will now consider the matter further. It is recommended
that in light of the current legal rulings, in order to safeguard the right to this relief
that employers submit an application and lodge an objection for those employees
who are not eligible for the 30% facility purely on the basis of the 150 km rule. If
the Dutch Supreme Court rules that the 150 km test is illegal, then the 30% facility
can still be applied retroactively.
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EYG no. DN0826
ED None
This material has been prepared for general
informational purposes only and is not
intended to be relied upon as accounting, tax,
or other professional advice. Please refer to
your advisors for specific advice.
Robert Rouwers
Tel:
+31 (0)88 407 83 42
Email: [email protected]
Jan-Bertram Rietveld
Tel:
+31 (0)88 407 83 22
Email: [email protected]
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