Fines and administrative penalties are not deductible from profit or the income from employment. Fines cannot be reimbursed to employees on a tax-free basis. Nor can they be included in the work-related expenses allowance. However, the benefit that an employee derives from a fine that has not been recovered may be included under the work-related expenses allowance, provided that the customary practice test is met.
Fine imposed
Many employers pass on the fines imposed on them to the employee who committed the offence for which the fine was imposed. A common example concerns fines imposed on the basis of the Act on the Administrative Enforcement of Traffic Regulations (Wahv); also known as the The Mulder Act. Such fines are imposed on the holder of the vehicle’s registration number. If the vehicle is registered in the employer’s name, the employer receives the fine; not the employee who committed the traffic offence. The Supreme Court had already ruled in 2008 that, in most cases, the employer is entitled to recover such fines from the employee.
A (traffic) fine passed on to an employee is, of course, a gain for the employer, which is included in the profit. In the latest version of the decision However, with regard to expenses subject to limited deductibility, the State Secretary for Finance accepts that the amount recovered in respect of a non-deductible fine is not included in the profit. In practice, this is usually already the case. In the accounts, the cost of the fine is usually offset by the income from the recovered fine. As the fine is not visible, the adjustment required in connection with the prohibition on deduction is often omitted from the income tax or corporation tax return.
Intermediate costs
It also happens that the fine is imposed on the employee but is to be borne by the employer. In that case, the fine may, of course, be reimbursed to the employee tax-free. After all, this constitutes what are known as intermediary costs. The reimbursement of the fine is then not deductible from the employer’s profits.
Unpaid fine
A fine that is not recovered from the employee is regarded as pay. The employee benefits from the employer’s decision not to recover a fine, even though this is legally possible. As this is then no longer a fine but constitutes pay, the employer may include this benefit in the work-related expenses allowance. The employer must, however, demonstrate that it is not unusual for such fines not to be recovered from the employee.