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Daily Tax Report: International

Netherlands’ Expat Tax Reprieve Brings ‘More Confusion’ (1)

Oct. 18, 2018, 10:33 AMUpdated: Oct. 18, 2018, 2:27 PM

Some expatriates working in the Netherlands will get a reprieve from the sudden tax hit they were bracing for, but the scope of the relief probably won’t go as far as many had hoped.

“We’re not thrilled about it,” said Jessica Piotrowski, a spokeswoman for United Expats of the Netherlands, a group lobbying against cuts to the expat tax benefit. “It’s a step in the right direction, but they’re not honoring their commitment to everyone.”

The government is trying to soften a proposal that would have trimmed a popular tax break letting highly skilled foreign workers receive 30 percent of their salaries tax-free, adjusting the plan Oct. 15 after fierce outcry from companies, industry groups, and workers.

But the new proposal—which called for a two-year transition period, allowing some workers keep their benefits as long as they’d expected to—is short on details, and still leaves out some workers, who may have grounds for a legal challenge.

The transition period comes after the government said in September it would shorten the duration of the “30 percent rulings” to five years from eight years, with workers who were already more than five years into their contracts losing their tax benefits immediately on Jan. 1.

An announcement from the government is imminent on the details of the reworked tax plan and how the transition period would work in practice.

Possible Impact

The transition period will probably benefit about 25,000 workers in total, said Hans de Vries, a tax director at Andersen Tax and Legal in the Netherlands, who in 2013 co-authored a book about the 30 percent rule.

About 65,000 people currently have a 30 percent ruling, he said in an Oct. 17 email to Bloomberg Tax.

The transition plan probably won’t help workers who began a 30 percent agreement more recently, and now won’t receive the full eight years they’d signed up for. De Vries said that in his understanding of the proposal, workers whose rulings were supposed to end between 2021 and 2023 would probably be cut off at the end of 2020, and those whose rulings would have ended after 2023 would probably end five years after their start date.

Possible Legal Action

“Personally I do expect that these employees will not accept this, which will result in court cases,” de Vries said.

The measure could be unlawful because it would retroactively cut benefits the government has agreed to give to individuals, according to analysis by Tom Barkhuysen, a lawyer at Stibbe Amsterdam. UENL, the expat advocacy group Piotrowski represents, commissioned the firm to review the legality of the government’s September proposal.

Piotrowski said the group is consulting with a lawyer but can’t bring action until the measure is voted into law.

Waiting for Details

Deputy Finance Minister Menno Snel’s Oct. 15 letter on the transition referred to the years 2019 and 2020 but didn’t explain how the transition period would work.

The government has said it will release more details on the transition plan and other changes to its tax proposals on Oct. 26, before the Dutch parliament begins debate on the country’s 2019 budget plan.

Along with modifications to the expat benefits, in the Oct. 15 announcement, the government also jettisoned plans to end its controversial dividend withholding tax, instead proposing to cut the top corporate tax rate to 20.5 percent in 2021.

The changes followed an announcement by Unilever that it was scrapping a plan to consolidate its headquarters in the Netherlands.

‘Reputational Damage’

The government’s original plans to change to the expat tax had met stiff resistance from both small and large businesses, which said the rule change would make it harder for them to recruit and retain talent, and would undermine the international business community’s confidence in the Netherlands. High-tech companies would have been hit especially hard, as they often hire from a global talent pool and rely on the 30 percent ruling to lure and retain workers from abroad.

Dutch and multinational companies operating in the Netherlands are pleased that the new proposal looks like a response to their calls, said Patrick Mikkelsen, executive director of the American Chamber of Commerce in the Netherlands. But, they would still prefer an eight-year term for the 30 percent rulings.

Firms are also concerned that the debate over the 30 percent rule over the past few months has depleted confidence in the Dutch government, he said.

“I’m sure that some reputational damage has been caused,” Mikkelsen said. “So of course it is good that things changed now, but it would have been even better if from the very first moment this would have been the proposal.”

‘Should I be Happy or Not?’

Meanwhile, for the expat workers who have been scrambling to rework their financial plans before January—in some cases even applying for jobs in other countries—the news has set off another rush to try to understand how they will be affected.

“There’s so much panic and fear,” Piotrowski said. Expats are asking themselves, “Should I be happy or not? What does this mean for me? What does it mean for my family?”

“A message like this comes out, and there’s more confusion than clarity,” she said.

To contact the reporter on this story: Isabel Gottlieb in Washington, D.C. at igottlieb@bloombergtax.com

To contact the editor responsible for this story: Kevin A. Bell at kbell@bloombergtax.com