Employers are, under certain conditions, liable for a tax levy of 75% on the salary of an employee whose employment is terminated. Recently, Advocate General (A-G) Pauwels published an opinion (in Dutch) regarding the interpretation of the wage definition in applying the excessive severance payment scheme.
The main question is whether allowances that are designated as final tax components under the work-related expenses scheme (WKR) – and are subsequently either exempt or which are allocated to the tax-free budget – should be included in the wage definition for this scheme. A-G Pauwels answers this question affirmatively.
Pseudo-final tax on excessive severance payments
To discourage excessive severance payments, the legislator introduced a scheme in 2008 where employers pay a pseudo-final tax on severance payments deemed excessive.
The scheme applies if the employee’s salary in the second preceding year (t-2) was at least €680,000 (2025). The severance payment is then assessed to determine if it is excessive by comparing the salary in the year of departure (t) and the preceding year (t-1) with t-2.
The employer is liable for a pseudo-final tax of 75% on the excessive portion of the severance payment, in addition to the regular payroll tax of the employee.
The case
A recent case involves an employee who was hired from abroad and was eligible for the 30%-ruling throughout the entire employment period. Upon termination of his employment, he received a severance payment subject to the 75% pseudo-final tax.
The question is whether exempt allowances under the WKR count towards the calculation of the salary for the excessive severance payment scheme.
Contrary to the ruling of the lower court and the appellate court, A-G Pauwels concludes that even a final tax component under the WKR is part of the salary concept, even if there is an exemption or if the amount is charged against the free space.
Practical significance
The ruling of the Supreme Court may have significant implications for practice.
If the Supreme Court follows A-G Pauwels’ view, employees will more quickly reach the threshold amount of €680,000, and the excessive severance payment scheme will be applied more frequently. Employers will need to carefully analyze the exact implications of this scheme and assess whether there are ways to avoid the pseudo-final tax.
We are very curious to see how the Supreme Court will rule on this point. Once the Supreme Court delivers its ruling, we will inform you further. Do you have any questions about this matter? Feel free to contact us.