Keywords: Director-Major Shareholder, Taxable Income, Wage Tax, Court Decision, Irregular Settlement
A director and major shareholder (“DGA”) is not covered by the Dutch Pensions Act. Until April 1, 2017, the DGA had the option of accommodating her pension within her own company. Although the Pension Act is not applicable, the Dutch Wage Tax Act (“WTA”) does give the DGA the possibility of building up a pension. Until April 1, 2017, this could be done on a self-administered basis.
In a new Dutch court decision, a DGA fails to convincingly demonstrate that she will be able to repay a highly accrued current account debt (in financial year 2012) and therefore the pension entitlement is deemed to be taxable income, based on the court’s decision.
In this case a woman is the DGA of a private limited company (“BV”). In 2012 the BV receives € 254,433 in pension capital from an insurer, intended for the DGA. This means that the BV takes over the pension administration. The assets of the BV consist of various claims on third parties of € 146,320, cash of € 111,646 and a current account claim on the DGA of € 348,985. The current account agreement drawn up at the beginning of 2012 is without security, without repayment agreements and capped at an amount of €50,000.
Due to the bankruptcy of all the participations of the BV, her income in 2012 disappeared. The tax inspector argued that the DGA herself has no private assets. The DGA does not contradict this. Given these facts, the inspector is of the opinion that the pension entitlement has in fact become the subject of security. Therefore, the entitlement to the pension is taxed as income. The court of appeal confirms this. The inspector rightly included the entire value of the claim in the DGA’s personal income. Although, the inspector did not correctly set the value of the pension entitlement because this pension entitlement happens in the private sphere on the level of the DGA and not at the level of the BV.
Art. 19b WTA contains provisions if a pension entitlement is settled irregularly. If this is the case, the entitlement is regarded as income from previous work at the market value immediately preceding the moment of settlement. There is an irregular settlement if, among other things, the pension entitlement:
When does one become a formal object of security? This is the case with pledging. In the case of de facto security, this would be a situation in which a lender would have requested security rights (pledge, mortgage, surety) on commercial terms. In this case no security is provided for the high current account debt, but that is because the BV and the director and the DGA were not acting at arm's length. By stating that the pension entitlement has in fact become the object of security, a prohibited act has taken place as a result of which this entitlement is taxed.
This case is about income tax, not wage tax (Wet Loonbelasting 1964). In the latter case the DGA should have paid the wage tax. Now it is the DGA who has to pay tax and revision interest in private (PIT). the court rejects the position taken by the tax inspector in this lawsuit that the pension entitlement should be taxed at fair value.
NAZALI TAX & LEGAL