A fixed expense allowance must be specified in advance and substantiated in advance on the basis of this specification.
Fixed expenses allowance
Under the targeted exemptions, expenses may be reimbursed to employees free of payroll tax. The same applies to intermediary costs. Naturally, the employer must provide evidence that the employee has actually incurred the reimbursed expenses, and that those expenses qualify for one of the targeted exemptions or as intermediary costs.
Processing employees’ expense claims is administratively burdensome. That is why employers choose to reimburse such costs in the form of a fixed allowance. Employees are then not required to submit expense claims and do not receive reimbursement for each individual item of expenditure, but rather a fixed amount per month.
Substantiation
A tax-free fixed allowance for expenses is permitted, provided that this allowance is based on an investigation into the costs actually incurred (Section 31a(4) of the Wage Tax Act 1964). A case was recently heard at the Gelderland District Court case in which this is addressed. The court confirms that the burden of proof that the nature and extent of the allowance were specified in advance or at the latest upon payment of the allowance rests with the employer. The employer refers in this regard to a cost analysis carried out in the past and approved by the Tax and Customs Administration during a previous audit. However, as the employer is unable to produce supporting documents relating to this earlier review, the burden of proof has not been met. The court therefore upholds the additional tax assessments, under which payroll tax is levied on the fixed expense allowances.
Networking associations/business clubs
The case also concerned the costs paid by the employer for employees’ membership of networking associations and business clubs. The employer takes the view that these costs constitute business expenses which fall outside the scope of the employees’ wages. The Court considers that ‘wages’ encompass everything that is reimbursed or provided to employees in the context of their employment. Given that the memberships are personal, the Court does not consider it plausible that the costs are purely business-related. The Court notes that the law does not provide for a specific exemption for (personal) memberships of networking associations and business clubs, and that this implies a deliberate choice on the part of the legislator. The Tax and Customs Administration’s adjustments in respect of these costs remain in force.