30% ruling ends when the employee is put on garden leave

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X (employee) had the American nationality. He came to live in the Netherlands on 1 November 2011 for a position as CFO and later CEO of company Y (employer). The inspector issued a grant on the application of the 30% ruling for the period 1 November 2011 to 31 October 2021. In August 2013, employee was told that his employment, subject to a notice period of 12 months, would be terminated with effect from 1 September 2014. Pursuant to a settlement agreement with employer, employee was exempted from work from December 1, 2013 until the date of dismissal. Employer no longer applied the 30% ruling from January 2014.

Employee appealed against the deduction of wage tax for January 2014. The Zeeland-West-Brabant District Court ruled that the period in which employee was made inactive (“garden leave”) should be regarded as a period of temporary inactivity as referred to in Article 22a , paragraph 4, part a, of the LB Act. As a result of this provision, in conjunction with Article 7: 628 of the Dutch Civil Code and the Wage Compensation Standardization Act, the required wage payment to employee had to be regarded as wages from current employment according to the Court.

Nevertheless, the 30% ruling could not be applied. The text of Article 10ec, paragraph 1, Implementing Decree LB showed that the duration of the proof scheme (30% facility) ended on the last day of the wage period after the wage period in which the employment ended.

According to the Court, this formulation showed that a taxpayer who wanted to make use of the 30% facility also had to actually perform work for his employer. Employee was exempted from all activities from 1 December 2013, which meant that the decision ended on 31 December 2013. Employee did not perform any more activities in January 2014, so that, according to the Court, employer had rightly not taken into account the application of the 30% ruling in the wage tax declaration for January 2014. The Court dismissed employee’s appeal as unfounded.

If an employee, after a period of garden leave, wishes to apply the 30% facility to a new employer, it must be kept in mind that the 3 month period will be taken into account when a request is made for this. The employment may have ended earlier than the employment contract. Thus the 3 month period will have started earlier.