Dutch tax authorities are expected to intensify wage tax audits with particular focus on the correct tax compliance with respect to 30 percent ruling holders. Cees M. Heerooms of law firm Deloitte explains why companies should get their wage tax administration in order and fast.

The potential clamp down was triggered after Dutch income tax inspectors carried out pilot audits of two companies within the Netherlands. One of the companies was found to be way off the mark with their wage tax administration, especially with regard to the 30 percent ruling.

According to several of Deloitte’s Netherlands-based client companies with employees who qualify for the 30 percent ruling, the Dutch tax authorities have been in touch and followed up with a letter asking for documents and information.

In the letter, the Dutch tax authorities give notice of a tax audit and determine which elements will be under review. The letter informs the companies that the tax audit will focus on the application of the 30 percent ruling. Before the authorities visit the client for the audit, the client is asked to answer, in writing, the questions asked in the letter.

The tax authorities request documents such as copies of the requests and grant of the 30 percent ruling, copies of the employment contracts and salary slips and annual statements of expatriates who have the 30 percent ruling.

Additional information is also requested, such as if the wages are paid by the seconding company and the host company, which allowances and benefits are paid by the seconding company and the host company, and if gross or net agreements are in place.

Recipients of this letter should contact their service provider to discuss how to get prepared for a possible audit of the company. A first step is for the service provider to undertake a review of the administration to identify potential exposures and to bring ideas about how to solve these issues.

Currently local tax inspectors are directing these tax audits to gather information but it is expected that the Dutch tax authorities will start audits next year throughout the Netherlands. . Subsidiaries of non-Dutch companies who have a significant number of employees from the parent company who are not on the subsidiary company’s pay roll are especially at risk

Such companies should therefore aim to get their tax administration in order as quickly as possible. Tax professionals who are specially trained in the area of 30 percent holder administration issues should be involved to help deal with any matters effectively and efficiently.

Where irregularities are identified, a pro-active report to the Dutch tax authorities and corrections in the wage tax administration may help to significantly decrease the risk of tax penalties for non-compliance. It is important to note that if irregularities are identified after the company has received the above-mentioned letter; a pro-active report to the Dutch tax authorities is no longer possible.

If you are not running your wage tax administration correctly you run the risk of paying a heavy penalty. After an audit, the Dutch tax authorities will impose a backdated assessment including interest and penalties, which start at 25 percent and can be as high as 100 percent of the tax due. It is also possible that retroactively the Dutch tax authorities will deny the granted 30 percent ruling.

November 2003

Cees M. Heerooms, a Director at Deloitte’s Amsterdam office, can be reached at: (+31) (0)20 582 5846 or by e-mail at: cheerooms@deloitte.nl.