After years of struggle over the early retirement scheme (regeling voor vervroegde uittreding or ‘RVU’), the Dutch Tax and Customs Administration (Belastingdienst) has again come away empty-handed.
What’s been happening?
Following the example set by the Court of Appeal in Den Bosch, the Dutch Supreme Court ruled on 22 June 2018 that the question of whether a redundancy plan with a voluntary severance scheme and redundant employee replacement scheme (hereinafter ‘Arrangement’) counts as an early retirement scheme (RVU) in the event of a reorganisation, should be determined on the basis of objective measures. The actual outflow of older employees is not relevant to this.
The case dealt with an employer who, in April 2013, announced a reorganisation which would result in the loss of 230 jobs. In the redundancy plan agreed with the unions, the reflection principle was applied when it came to selecting who would be dismissed. The redundancy plan also contained an Arrangement. Redundant employees and employees making use of the Arrangement received severance pay. This was calculated based on the subdistrict court formula, and amounted at most to the loss of income to be reasonably expected on reaching state pension (AOW) age. The benefit entitlements for which an employee was eligible were taken into account in the pay calculation. An employee could only take advantage of the Arrangement with the express written approval of the employer.
Tax and Customs Administration: actual operation of the Arrangement is therefore RVU
The Court of Appeal ruled that there was no RVU. The Tax and Customs Administration lodged an appeal in cassation, because they held that although the Court of Appeal did indeed rule correctly that the objective characteristics and conditions of the Arrangement and its actual implementation should act as a guide, it subsequently failed to recognise that the aim of the Arrangement is conveyed by its actual operation. The Tax and Customs Administration therefore held that, to decide the issue of whether there is an RVU, one must look at the actual outflow of employees and the level of the severance payments made to them. If the outflow of older employees varies by 10% or more from a redundancy plan without an Arrangement in place, then there is an RVU, and there follows a pseudo tax levy of 52% on the value of the severance pay.
Supreme Court: objective assessment required
The Supreme Court does not agree. It needs to be assessed whether the Arrangement is intended to bridge a gap or to supplement the income of the employee or former employee up to the pension date. The employer’s motive for offering the Arrangement and the employee’s choice of whether to accept are irrelevant. For that reason, there was no need to look at the actual outflow of employees and level of severance payments made.
This judgment in fact means that as long as you, as an employer, only apply the reflection principle objectively, you do not have to qualify a voluntary redundancy package in a redundancy plan as early retirement (RVU).
You can find the full ruling (in Dutch language) here.