A taxpayer and his wife separated in 1992. In 2020 and 2021, he pays his ex-spouse €4,078 each year from his retirement pension. These payments are tax-deductible, but due to the tax rate measure, they are not deductible at the highest rate. As a rule, anyone who divorces their spouse on or after 1 May 1995 is not affected by this, as the pension fund then pays the ex-spouse directly. The Court of Appeal recognises this difference as discrimination and has struck down the additional levy. The Supreme Court ruled that these were unequal cases, and therefore the higher levy remains in force.
Settlement under Boon/Van Loon
The Act on the Equalisation of Pension Entitlements in the Event of Divorce (Wet VPS) came into force on 1 May 1995 and, due to transitional provisions, does not apply to divorces that took place before that date. In such cases, the rules set out in the 1981 Boon/Van Loon judgement apply. The taxpayer receives the full pension himself and settles an agreed portion with his ex-wife. The tax inspector allows the deduction for maintenance obligations on those payments. At the same time, he applies the rate measure, which limits the benefit to the rate of the second tax bracket.
Court intervenes
Under the general rule of the VPS Act, the former spouse has an independent right to payment from the pension fund. In such cases, there is no tax deduction and therefore no tax rate adjustment. The Court of Appeal considers this to be contrary to the prohibition of discrimination. Both regimes divide pension rights between divorcing spouses and are based on the principle of mutual support. The Court of Appeal sees no justification for the difference. The Court of Appeal disapplies the tax rate measure, following which the State Secretary lodges an appeal to the Supreme Court.
No similar cases
The Supreme Court emphasises that, in tax matters, the legislature has broad discretion in determining whether cases are comparable. The decisive factor is the purpose of the tax measure, which focuses on tax deductions. Under the VPS Act, the pensioner has no tax-deductible item in respect of the settled portion. That portion does not form part of his taxable income. Therefore, the cases are not comparable even from the perspective of the statutory framework.
Care doesn’t count
The fact that both regimes prioritise the maintenance of the former spouse does not alter this. The issue here concerns the tax deduction for the person making the payments, not the tax position of the recipient. For the sake of completeness, the Supreme Court ruled that the same applies to those who divorced after 1 May 1995 but, exceptionally, do not make a settlement payment. The district court’s ruling stands.