What happens if an employer does not apply the 30% ruling in the payroll?

30% ruling in pay slip
The non-application of the 30% ruling by the employer to an employee's salary is a matter of employment law matter and can't be dealt with by the tax courts.

Source: District Court of The Hague 1 July 2020

The non-application of the 30% ruling by the employer to an employee’s salary is a matter of employment law and can’t be dealt with by the tax courts. Now that the employer has deducted payroll tax in the correct manner, the employee’s appeal is unsuccessful.

In August 2014, the tax inspector issued a grant to an employee for the period from 1 August 2014 to 31 December 2018 for the application of the 30% ruling for incoming employees. This evidence rule applies to employment by the employer. The employer withheld and paid payroll tax on the employee’s salary over the months September, October, November and December 2018 without applying the 30% ruling.The reason why the employer did not apply the 30% ruling was because the employee had been suspended. The employee objected to these deductions and subsequently lodged an appeal.

According to the employee, she and her employer have agreed that the 30% ruling applies, that there are civil-law agreements between them and that the employer does not have the unilateral right to apply the 30% ruling or not. According to the inspector, the employer should have designated part of the employee’s wage as final tax pay in order to be able to bring it under the exemption of Article 31a paragraph 2 under e Act LB 1964. And the employer did not do so.

In this case, the question of whether the employer has correctly withheld tax at source is first of all whether the employer has designated the allowance as a final tax component. Whether or not the employer was right to do so is a contractual issue between the employee and the employer and can’t be answered in these proceedings. Since, according to the pay slips, the employer did not apply the 30% ruling in September, October, November and December 2018, in the opinion of the District Court the compensation in those periods was not designated as a final levy component and was therefore withheld. The fact that the employee has agreed otherwise with the employer and that the employer may violate or fail to comply with agreements in this respect is of an employment law nature and can’t therefore result in the employee still being able to force the inspector that the compensation is paid net.

The question raised by the tax inspector as to whether the 30% ruling can still be applied since the employee was suspended from her employment then doesn’t have to be answered in this case. But that wouldn’t have changed the outcome for the employee.

In another case the 30% ruling was applied by the employer during the suspension (garden leave) of the employee but the Court ruled that this was not possible since there must be an active employment situation to be able to apply the ruling.

Employee and employer have to agree in writing how the 30% ruling is applied in the payroll administration once it is granted. This can be done by adding an article in the employment contract or with a separate addendum. This agreement falls under employment law. So if actions are taken contrary to the agreement the employee can only object based on employment law and not based on tax law.

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