Supreme Court confirms that the duration of the expat scheme may be shortened

The Supreme Court has provided clarity on the matter of whether the legislature was permitted to cut the duration of the 30% facility, now known as the expat scheme.  

The Tax Plan 2019 stated that from 1 January 2019 the term of the 30% facility would be cut from 8 to 5 years, after it had already been reduced from 10 to 8 years from 2012. Although transition arrangements were put in place, this change also affected some decisions that had already been issued. This was therefore the at the heart of the dispute that was put before the Supreme Court. Those affected were of the opinion that they should be able to rely on the decision originally granted which provided for an 8 year term, as stated. 

In view of the changes to the term of the scheme as included in the 2019 Tax Plan, the Tax and Customs Administration sent letters to taxpayers with a 30% facility in December 2018 to inform them of the consequences of the adopted bill to amend the duration of the 30% facility and how this could affect them. The letter stated that transition arrangements would apply and that the new end date for the 30% facility would depend on the expiry date stated in the decision that the person concerned had received at the time. An overview included in that letter showed that in cases like those involving the interested parties, where the expiry date of that decision fell in 2021 the new end date would be 31 December 2020.

The parties concerned argued that by introducing the amendment without generous transition arrangements, the legislator had restricted existing legal positions in a way which is contrary to the principles of legal certainty and legitimate expectation. The legislator had deliberately chosen to include only limited transition arrangements, as a result of which a considerable number of the parties concerned would lose their right to the 30% allowance sooner than anticipated.

In its ruling, however, the Supreme Court emphasised that the legislature has a wide margin of discretion when it comes to designing, amending or phasing out tax facilities. This freedom is far reaching, specifically because it relates to a favourable scheme which grants no legally enforceable entitlement but the continuation of which depends on policy and budgetary considerations. The court therefore assesses such legislation with caution and only sees reason to intervene when the legislature has clearly failed to strike a reasonable balance between the various interests involved.

The Supreme Court ruled that this is not so in this case. The reduction in the term is justified in the Supreme Court’s view, given the purpose of the measure, i.e. to limit the budgetary burden. The decision to provide only limited transition arrangements cannot be regarded as manifestly unreasonable. Even though the change may have an adverse financial impact on the employees concerned, the Supreme Court did not consider this to be disproportionate in relation to the policy goals. Nor is there any question of a prohibited retroactive effect: since the legislature only applied the amendment to future periods, despite the fact that decisions already issued would end sooner than had been originally indicated as a result.