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1 Global Watch International Assignment Services September 20, 2011 The Netherlands Update on proposed amendments to the 30% ruling PwC International Assignment Services Network PricewaterhouseCoopers International Assignment Services (IAS) is a special practice unit of tax professionals who spend 100% of their time with consulting and compliance issues for international assignees. If you have any questionss concerning this Global Watch, or would like further informationn concerning our IAS capabilities, please contact William Owens, IAS Leader at +1 (704) This Global Watch does not provide a comprehensive or complete statement of the taxation law of the countries concerned. It is intended only to highlight general issues which may be of interest to our clients. For issues relating to this Global Watch please contact your local international assignment services advisor. In Brief Last Thursday, the 2012 Budget Plan was revealed by the Ministry of Finance. In this Global Watch we inform you in more detail on the proposed amendments to the 30% ruling. The purpose of the amendments is to avoid originally unintended and broad application of the 30% ruling. The proposed amendments As indicated in our Global Watch released on September 12, 2011 (click here), the proposed amendments to the 30% ruling can be follows: summarized as 1. The so-called specific expertise requirement will be based upon a minimum salary level; 2. The look back of the so-called reduction rules, that reduce the duration of the 30% ruling by previous periods of stay and/or work in the Netherlands, is extended to 25 years; 3. Employees living in the border area (i.e.. radius of 150 km from the Dutch borders) will no longer qualify for the 30% ruling; 4. It will be easier for university doctorates to obtain the 30% ruling. Below we provide more details on the specific amendments. Specific expertise In practice, the requirement that an employee has to have specificc expertise thatt is hardly or not available on the Dutch labour market was not difficult to meet. As this is not considered desired, it is proposed to introduce a (taxable) salary norm. The salary norm is equal to the minimum salary level for a so-called knowledge migrant worker of 30 years of age and older. In 2011, this amount is EUR 50,619.

2 This amount is indexed every year. When an employee meets this salary requirement, he is deemed to meet the condition of specific expertise. In addition, this specific expertise should still not or hardly be available on the Dutch labour market. It is noteworthy to point out the difference between the salary norm for the purpose of the knowledge migrant worker regulation and for the purpose of the 30% ruling. The minimum salary for the purpose of the 30% ruling is the amount excluding 30% reimbursement. As such, the gross salary should be at least EUR 72,313 (i.e. if it is intended to provide the full 30% reimbursement instead of a lower percentage). This will make it generally more expensive for employers to recruit employees from low salaried countries (e.g. India). For university doctorates the minimum salary norm will be set lower. Please see our comments further below under the University doctorates section. 25 year look back As of 2012, all periods of previous stay and/or work performed in the Netherlands that ended in the last 25 years prior to the start date of Dutch employment is deducted from the maximum duration period of 120 months. This rules out almost all Dutch national employees who return to the Netherlands at some stage in their international career. In addition, employees who previously have been in the Netherlands will also be impacted more than currently where the look back period is 10 or 15 years. The purpose of extending the look back period is that it is believed that the ruling can be obtained too easily, especially by individuals who worked abroad for not much longer than 10 years. It goes without saying that, in practice, it will be very difficult to obtain the information of previous stay and/or work in the past 25 years. 150 km border radius Employees living in the border area (i.e. radius of 150 kilometres from the Dutch borders) will no longer qualify for the 30% ruling. This will, for example, rule out Belgium, Luxembourg and a significant part of Germany. Also part of France and a small part of the UK are impacted. For the overseas countries it is not yet clear how the 150 radius is calculated and it is possible that (a very small part of) Denmark is impacted as well. The purpose of this limitation is meant to avoid Dutch residents solely because of the 30% ruling not being recruited as easily as their foreign neighbor who lives in the border area and can commute to the Netherlands. It is believed that within a distance of 150 km, the employee can easily commute to the Netherlands and, therefore, the extra-territorial costs (that the 30% ruling is meant to cover) will not be significant. Hence, the 30% tax free reimbursement is considered too substantial. We note that de facto this limitation rules out two countries (Belgium and Luxembourg) completely and also the workplace in the Netherlands is not considered (e.g. will a Belgian resident truly commute when he takes up employment in the middle or north of the Netherlands?). Therefore, questions could arise whether or not this limitation is disproportional and also whether it can be considered EU proof. As the text of the proposed amendments is not published yet, it is not clear how this condition is exactly going to be phrased. For example, will PwC Global Watch 2

3 it be possible to first move to a place outside the 150 km radius and then take up employment in the Netherlands? University doctorates It is encouraged that university doctorates, who before lived abroad, can also obtain the 30% ruling. Two groups can be distinguished, they who obtained their PhD whilst living in the Netherlands and they who (still) lived abroad. The university doctorates who obtain their PhD whilst living in the Netherlands and afterwards start working in the Netherlands are not recruited from abroad (but locally hired). The relief that this group of university doctorates is given, is that they do not have to meet the condition that they are recruited from abroad. For this group of university doctorates, but also the group that is still living abroad prior to taking up employment in the Netherlands, the following conditions should be met: 1. The university doctorate takes up Dutch employment within one year after obtaining their PhD, and; 2. They have to meet the minimum (taxable) salary norm for knowledge migrant student workers, currently EUR 26,605 (2011, indexed annually). The minimum salary for the purpose of the 30% ruling is the amount exclusive of the 30% reimbursement. This means that the gross salary should be at least EUR 38,007 (i.e. if it is intended to provide the full 30% reimbursement). From the text of the 2012 Budget Plan it is not fully clear if the above relief and conditions only apply for university doctorates younger than 30 years of age. When will the new rules apply? The new rules apply per January 1, There will be no retroactive effect for employments that started before this date. Hence, this allows for some tax planning opportunity. Where the proposed amendments will result in not obtaining the 30% ruling for new intended assignments to, or employments in, the Netherlands, it might be sensible to accelerate these intended assignments. Transitional rules 5 year interim test In principle, the granted 30% rulings are being respected. However, as of the sixth year of the ruling, the Dutch tax authorities have the possibility to request the employer to convince them that the employee still has the required specific skills that are not or hardly available on the Dutch labour market. This is also known as the 5 year interim test. If the employee during this 5 year interim test does not meet the new conditions, then the employee is no longer entitled to the 30% ruling. Effectively, the conditions that at such moment still need to be fulfilled are: 1. They employee meets the minimum (taxable) salary norm of EUR 50,619, and; 2. Prior to the recruitment from abroad, the employee should not have lived within the 150 km border radius. Employees who have already passed the 5 year period prior to January 1, 2012 are not affected at all. PwC Global Watch 3

4 Change of employer or withholding agent It is not clear whether a change of employer or withholding agent has any impact. On the basis of the available information it is likely that the same principle applies as for the 5 year interim test indicated above. New reduction rules not applicable The granting period will not be impacted by the new reduction rules. Hence, the extension to a 25 year look back period will not be applicable. This is mostly important for Dutch nationals who have returned to the Netherlands after an international career. They will, therefore, not be impacted unless as of the sixth year they do not meet the minimum salary requirement and/or they were living in the 150 km border radius prior to returning to the Netherlands University doctorates No transitional rules apply to university doctorates. Given that the wording of the proposed amendments is not available yet, it is not fully clear if tax planning could involve postponement of employment until after January 1, Extra-territorial costs For completeness sake it is still possible to reimburse the actual extraterritorial expenses if the employee cannot obtain the 30% ruling anymore. The Bottom Line The exact wording of the amendments will mainly be included in the Income Tax Decree, i.e. not the formal law. It is hoped that proper discussions on the amendments occur, especially where it involves the transitional rules and limitations for employees that will fall in the 150 km border radius or will be confronted with the significant extension of the reduction rules. Where the new rules will result in not obtaining the 30% ruling anymore we advice to accelerate intended assignments or employments. For university doctorates this may be different. For more information, please do not hesitate to contact: Wim Kanbier +31 (0) wim.kanbier@nl.pwc.com Muriël Schoenmakers +31 (0) muriel.schoenmakers@nl.pwc.com Dennis Reins +31 (0) dennis.reins@nl.pwc.com Jan-Joost Mak +31 (0) janjoost.mak@nl.pwc.com PwC Global Watch 4

5 This document is for general information purposes only, and should not be used as a substitute for consultation with professional advisors. SOLICITATION 2011 PricewaterhouseCoopers LLP. All rights reserved. In this document, "PwC" refers to PricewaterhouseCoopers LLP, a Delaware limited liability partnership, which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity. PwC Global Watch 5