Evaluation of the customary salary rule

The State Secretary for Tax Affairs, Tjebbe van Oostenbruggen, has presented a report on the evaluation of the customary salary rule to the House of Representatives (Evaluatie gebruikelijkloonregeling: Draagt de dga zijn steentje bij?). The report of the research bureau SEO Economisch Onderzoek examined the effectiveness of this rule and its impact on the Director/Major Shareholder (DGA).

The policy aims of the customary salary rule are largely met but there is room for improvement. In discussions with the Tax and Customs Administration and tax consultants it emerged that it is challenging to precisely estimate the customary salary. This is because it is not known what work the DGA is going to do, plus it is difficult to establish a link between an appropriate salary and labour market conditions and there is little data available on comparable employment roles. The DGAs and consultants interviewed also indicated that the tax authorities rarely correct the customary salary retrospectively. It also emerged that enforcing the most similar employment role is problematic for the tax authorities.

SEO Economisch Onderzoek offered three policy options to make the customary salary rule more effective. The researchers indicated that the following options are worth further investigation:

• a set increase in the standard amount based on the wage bill;
• the development of a valuation method for the customary wage to support taxpayers and the tax authorities in arriving at an accurate determination of the customary salary;
• greater enforcement by the Tax and Customs Administration.

Before the summer the Cabinet will present a response to the study and the proposed changes.