Supreme Court Ruling 4 april 2025

The case concerned an employee benefiting from the 30%-ruling who received a substantial severance payment upon termination of employment. In calculating the pseudo-final levy, the Dutch tax inspector included wage components designated as final levy elements under the work-related costs scheme (WKR), including the 30%-reimbursement, in the wage base. The Court of Appeal had held that tax-exempt reimbursements and benefits should not be included in the wage definition for the purposes of the pseudo-final levy. For further details on that earlier decision and an explanation of the excessive severance payment regime, we refer to our previous news update. (Note: the threshold for the wage base in 2025 is €680,000.)

The key question was whether the 30%-reimbursement, which is specifically exempt under the WKR, must be included in the wage base for the pseudo-final levy. The Supreme Court answered this question in the affirmative. The broad definition of wages under the WKR means that the 30%-reimbursement, despite its targeted exemption, qualifies as wages for the purposes of the pseudo-final levy. This implies that all wage components designated as final levy elements under the WKR, regardless of whether they are exempt or taxable, must be included in the wage base when calculating an excessive severance payment.

What are the implications of the ruling for your organisation?

Due to the Supreme Court’s broader interpretation of the wage base, employers are more likely to be confronted with the pseudo-final levy on excessive severance payments. Wage components designated as final levy elements under the WKR must be taken into account for the pseudo-final levy, regardless of whether they are subject to taxation, specifically exempt, or fall within the discretionary scope of the WKR.

The excessive severance payment regime is complex and may result in significant financial consequences. Compared to the Court of Appeal’s earlier ruling, the Supreme Court’s decision may lead to either a higher or lower pseudo-final levy, depending on the specific circumstances. A higher wage base can have opposing effects within the framework of this regime, the extent of which depends on the facts of the case.

The ruling also increases the administrative burden for employers and necessitates accurate (WKR) recordkeeping. One key issue is how collective reimbursements and benefits falling within the discretionary scope of the WKR should be treated. Moreover, the ruling may have implications for other tax regimes where the definition of wages is relevant. It is therefore important to monitor the State Secretary’s response to this decision.

After reading this news item, do you need further clarification on the potential consequences of this ruling for your organization? Or are you interested in a no-obligation consultation? If so, please contact your Loyens & Loeff adviser or one of our tax advisers from our Employment & Benefits team. We will be happy to assist you.