The “standard practice” criterion as per the WKR scheme

The central plank of WKR, the Work Related Expense Scheme, is that it treats all allowances and disbursements as wage components. The disbursement of any gain that is attributable to the recipient’s status as an employee is essentially regarded as forming part of that person’s wages irrespective of whether it is or is not experienced as a remunerative advantage. The Work Related Expense Scheme provides for a free margin of 1.2 percent of the wage bill for tax purposes. The employer has the option of designating particular allowances and reimbursements as “final levy components” (dutch) provided the “standard practice” criterion is met (which criterion in fact lacks statutory definition), on assumption of liability for the associated withholding taxes over and above the free margin rests.

If and when the Inspector of Taxes decides that particular allowances or disbursements should be denied final levy component status, the onus of coming up with validating facts and circumstances will rest with him or her. The employer in response may decide to take on the tax authorities by launching legal proceedings. This will then involve the Inspector having to add plausibility to the alleged facts and circumstances. It will not suffice for him or her – as the Supreme Court has confirmed – merely to refer to the standard practice criterion the tax service typically adheres to, in the amount of up to 2,400 euros per employee, per annum.

The genesis of the Work Related Expense Scheme offers few clues on how the Inspector of Taxes is properly to acquit him or herself of the obligation to furnish facts. An obvious approach would be to resort to drawing parallels with how the Work Related Expense Scheme has been applied to other members of the same employer’s workforce in similar positions and to members of staff at different employers.

According to the Amsterdam Court of Appeal, an employer by bestowing a large parcel of shares on a select group of staff had flouted the standard practice criterion, there being no correlation – as the Court argued – between the shares being awarded and the allowance for work-related expenses having actually been incurred by the employees in question. As the scope of the Work Related Expense Scheme is not in fact confined to allowances and disbursements of a purely arm’s length or hybrid nature, the Supreme Court ended up throwing out the above Amsterdam Court of Appeal’s ruling and referred the case to the Hague Court of Appeal for adjudication.

Dutch version: Werkkostenregeling gebruikelijkheidscriterium