Exercise of option rights by former Dutch resident

Foreign employees boasting special skills who are posted to the Netherlands have the option of having their employer file a request for their admission to the “30% ruling”, the essence of which regime is that 30% of the aggregate gross remuneration qualifies as tax-exempt compensation for so-called extraterritorial costs (these being the additional costs of accommodation in what is not the employee’s own country of origin). 

A particular lawsuit revolved around the question as to whether the 30% regime should be taken to include share option rights having been granted to an employee, the latter not having exercised his options until after he had left the Netherlands. Having posted its employee to one of its Dutch subsidiaries, the foreign-based parent company in question had granted him the options subject to particular conditions being met. The scheme in question provided for a 25% tranche of the options being vested every year, for the first time during the year following that in which the options had been granted. Several tranches had thus vested while the employee continued to be stationed in the Netherlands. By the time he had got around to exercise his options, however, he had already left the Netherlands for a posting elsewhere. 

The District Court argued that the employee’s benefit from exercising his options should be treated as income from his previous years’ employment in the Netherlands, and therefore failed to qualify for the 30% regime as the employee’s eligibility for the latter had ended on the final day of the final payroll period of his Dutch job posting.

The Supreme Court sided with the District Court, asserting that it did not matter whether or not the benefit of the options could be said to have accrued to the option holder before the latter had actually got around to exercising his stock options, as it was not that the value of the option right was regarded as part of the wage but rather, that the proceeds on exercise of the option right were charged with payroll tax. It followed, according to the Supreme Court, that the taxation date the District Court had arrived at had been correct, as had been the latter Court’s dismissal of the 30% ruling and its rejection of the operating company’s contention to the effect that the 30% regime should apply to the option-related benefit given that the employee’s departure from the Netherlands had not caused his employment with the corporation to end. The Supreme Court in conclusion reiterated that it was an employee’s Dutch posting which was the criterion for applicability to the 30% ruling.

Please contact us if you want to know more about the 30% regime!

Dutch version: Uitoefening optierecht na vertrek uit Nederland