If, as a director and majority shareholder (DGA), you have accrued a pension with your private limited company, the accrued amount will be paid out when you reach retirement age. There is not always enough money to pay out the pension.
Waiving benefits
In certain cases, the Tax and Customs Administration may regard this as a waiver of the self-administered pension. This is one of the actions that result in an ‘irregular’ pension. The consequence of an ‘irregular’ pension is that a tax penalty comes into effect.
The tax penalty means that the entire pension entitlement is treated as income (maximum income tax rate for 2021: 49.50%). In addition, 20% in revision interest is calculated on the entire entitlement. This is, of course, undesirable.
Benefits to be taxed after all
In the ruling The judgment of the Arnhem-Leeuwarden Court of Appeal of 24 November 2020 concerned a director and major shareholder who had accrued pension entitlements with his private limited company. The company did not have the funds to pay out the pension. The director and major shareholder had a claim against the private limited company for the pension benefits still to be received. Conversely, the company had a current account claim against the director and major shareholder.
The inspector took the view that, despite the fact that the private limited company had no funds to pay out the pension, it was nevertheless obliged to do so. The inspector stated that the director-major shareholder’s claim could be set off against the current account debt. According to the inspector, the pension had been received as a result of the set-off. Consequently, tax still had to be paid on the pension payment.
The director and major shareholder was of the opinion that he no longer had a pension provision with the private limited company. This was because he had, in the 1990s, reportedly bought out his early retirement scheme. According to the director and major shareholder, the pension payment could not be set off against the current account debt either. He argued that there was no current account debt because the amounts withdrawn had already been repaid.
However, the director and major shareholder has not provided sufficient evidence to support these arguments. The Court of Appeal has therefore ruled in favour of the Tax and Customs Administration. The pension must be paid out despite the private limited company’s poor financial position.