A salary split may be triggered if an employee is posted to a foreign group company and the foreign group company qualifies as “economic employer”.
According to the Supreme Court and a Decree of the State Secretary, this is the case if:
- There is a relationship of authority between the employee and the foreign group company, and
- The duties of the employee are an integral part of the business activities of the foreign group company, and
- The formal employer charges the salary costs in an individualized manner to the foreign group company
However, a Dutch lower court has now ruled that an individualized recharge is not required and that it is generally sufficient if the salary costs are borne by the foreign group company. This approach may result in foreign employees / directors working in the Netherlands sooner being subject to Dutch taxation if, based on transfer pricing rules, salary costs form part of intercompany internal invoicing. For Dutch employees working abroad, this can also sooner result in a “salary split”, which can lead to a tax benefit. The State Secretary of Finance has appealed against the decision of the court. In the meantime, it is advisable to review your intercompany transfer pricing policy in respect of cross border employees / directors to assess any tax risks present or opportunities available.