Supreme Court rules in case on excessive severance package

In February we informed you of the opinion issued by the Advocate-General on the matter of whether the definition of ‘salary’ for the excessive severance package is so broad that it would also include elements classified as final levy salary under the work-related costs scheme (WKR). 

The Supreme Court has now made a ruling in an important case which provides clarity about the interpretation of the wage definition for the purposes of the excessive severance package. 

The Supreme Court considers that the specifically exempt 30% facility also forms part of the wage definition for the purposes of the excessive severance package. The Supreme Court further decided that a final levy amount also forms part of this wage definition, even if it falls under a specific exemption or forms part of the tax-free WKR budget. Whether or not the legislature recognized this is not apparent from the enactment history of the work-related costs scheme (WKR), which circumstance, however, cannot lead to a different conclusion. The court cannot give an interpretation of the wage definition which differs from the standard wage definition laid down in the Wages and Salaries Tax Act.

While the Advocate-General discussed this issue at great length in his opinion, the Supreme Court now dismisses it with a reference to a section of the Advocate-General’s opinion. The final opinion of the Advocate-General will be monitored. 

This appears to mean that not only is the 30% facility part of the salary in the meaning of the excessive severance package, but so are all other final levy amounts. In view of the amounts involved, the inclusion of tax-exempt salary under the 30% facility will often have a major impact on the calculation, while other wage elements covered by the work-related costs scheme (WKR), such as travel expenses, moving costs and the Christmas box, must also be included. This affects the wage definition for both the indicative salary and the benchmark salary. It means that the inclusion of these wage elements could turn out to be either positive or negative for an employer.

The question now is to what extent this ruling can be more broadly applied than just to an excessive severance package. The Wages and Salaries Tax Act includes several regulations without their own wage definition, such as the articles on the customary wage or early retirement schemes (RVU). The Advocate-General also considered this in the published opinion and it would seem only natural that the standard wage definition should apply to these provisions, too.