Court of Appeal of The Hague, in a case in which the Inland Revenue does very much hide behind the regulations, ruled that a salary for a DGA of just €7,500 meets the customary pay scheme.
Burden of proof
First, the Tax Court argued that the burden of proof for the lower (customary) salary, than the standard amount of €48,000 applicable at the time (2022), rests on the interested party. In that contention, the Court must of course go along. But the Court does not agree with the Tax Office that the interested party did not meet this burden of proof in this case.
Losing
The Inland Revenue then argues that the mere circumstance that the payment of a customary wage (€48,000) at the BV creates a loss is not an arm's length reason to set the wage lower.
However, the court ruled that the interested party had sufficiently substantiated that payment of the salary set by the Inland Revenue was an immediate threat to the continuity of the BV. The BV achieved very modest (partly due to the low salary of the DGA positive) operating results in 2022 and the previous years - apart from a one-off corona-run in 2021. And the DGA did not otherwise withdraw funds from the company either. The Court considers it plausible that the capital accumulated by the company was needed to enable the continuation and possible expansion of the company's operations. The fact that there was no structural loss situation in 2022 does not alter this.
The court also further considered that the Tax Office's contention, that it is only necessary to assess whether there is sufficient liquidity in the BV to pay the payroll tax, is contrary to the parliamentary treatment of the customary pay scheme.
Looking ahead
The court agreed with the Tax Office's argument that, for the application of the customary pay scheme, facts and circumstances occurring in the period after the end of the year covered by the assessment need not be considered. However, the Court adds: “However, this does not alter the fact that the Inspector, in deciding whether an additional tax assessment should be imposed or the manner of disposing of an objection after 31 December 2022, may not turn a blind eye to the circumstance, such as the one at issue here, that the business remained loss-making from 2022 onwards and had already ceased to operate subject to empty sales in 2025.”.