Wage definition for the application of the excessive severance package rule

There has been discussion surrounding the wage definition to be used for the application of the excessive severance package rule

The excessive severance package rule was introduced to discourage employers from providing a "golden handshake" amounting to more than a year’s salary. An employer who awards a higher amount, which is thus deemed to be an excessive severance package, pays a 75% final levy on it. This levy only becomes payable where an employee receives an annual salary of more than €680,000 (in 2025). The Supreme Court has been asked to consider the question of whether the term "salary" is so broadly defined that it also includes elements classified as final levy salary under the work-related costs scheme. This would mean that salary components which are specifically exempt or which are allocated to the tax-free budget would form part of the salary, too. 

The Advocate-General (AG) has also recently issued an opinion on this matter. Because how salary is defined comes into play not only with the excessive severance package rule but also in other areas of the Wages and Salaries Tax Act, such as pension or when establishing the customary salary. This makes the opinion of the AG (in Dutch) well worth reading. The AG ultimately comes to the reluctant conclusion that the definition of salary is broad and includes items classified as final levy salary under the work-related costs scheme. Therefore specific exemptions and salary amounts allocated to the tax-free budget should also be taken into account when determining the amount of the salary.  The AG also notes in this context that there is actually no reason why a specific exemption should be counted as salary as this relates to a secondary remuneration element. However, the legislature did not specifically mention this when introducing the excessive severance package rule. The AG subsequently takes the view that, however unfortunate that may be, it is not up to the courts to apply a different interpretation. The AG further mentions in passing that the quality of the legislative process in this area is "substandard". We are very curious to see how the Supreme Court will rule on this point.