Court of Appeal Overturns verdict on 30% Tax Ruling for Ukrainian Refugee Worker

In a significant development following the recent court case regarding the application of the 30% tax ruling to a Ukrainian refugee expat, the Dutch Court of Appeal has now ruled in favor of the tax authorities. This decision overturns the initial court verdict, which had allowed the expat to benefit from the 30% ruling. Below, we break down the key points of the appeal case and its implications.

Background of the Case

As discussed in our previous article, a Ukrainian man fled to the Netherlands in March 2022 with his wife and children due to the war in Ukraine. He was granted temporary residence under the European Temporary Protection Directive, allowing him to live and work in the Netherlands. Initially working on a Liberian-flagged ship in international waters, he later secured a one-year employment contract with a Dutch company in September 2022.

He applied for the 30% ruling, which offers tax benefits to employees recruited from abroad. However, the Dutch tax authorities rejected his application, arguing that he was not an "incoming employee" as defined by tax law because his move to the Netherlands was for personal reasons (fleeing from the war). The lower court ruled in the expat’s favor, concluding that the motive for his relocation (war rather than employment) was irrelevant and that his stay in the Netherlands remained temporary.

The Court of Appeal's Ruling

Following an appeal by the tax authorities against the lower court’s verdict, the Court of Appeal has now ruled against the expat. The key considerations of their decision are as follows:

1. Definition of an Incoming Worker
   The court reaffirmed that an "incoming employee" under Dutch tax law must be recruited from abroad. By the time the Ukrainian worker signed his Dutch employment contract in September 2022, he had been residing in the Netherlands for several months. This, the Court of Appeal found, meant he was no longer considered to have been "recruited from abroad."

2. The Importance of Residency Status
   While the lower court emphasized that the worker's stay was temporary due to the war, the Court of Appeal took a different view. It found that his continuous registration in the Dutch population register (BRP), the issuance of a Dutch social security number (BSN), and his family's ongoing residence in the Netherlands indicated a degree of permanence. This despite also having kept significant ties to the Ukraine, including an apartment.

3. Timing of Employment Contract
   The Court of Appeal stressed that for the 30% ruling eligibility, the worker must not have been a Dutch resident at the time of recruitment. Given his extended stay before signing the contract, he did not meet this requirement.

Implications of the Decision

Stricter Interpretation of "Incoming Employee"
This ruling confirms that employees are not eligible for the 30%-ruling in case  automatically mean one they have personal ties with the Netherlands at the time of recruitment. The timing of contract signing versus actual relocation is crucial.

• Residency and Tax Benefits
  Employees who relocate to the Netherlands under temporary protection or other humanitarian grounds may now find it more difficult to claim the 30% ruling unless they can clearly demonstrate that they were recruited directly from abroad and have no personal ties with the Netherlands at the moment of recruitment.

• Reason for moving
  Unfortunately, the Court of Appeal did not address the position of the tax authorities that the applicant's motive for moving to the Netherlands is a deciding factor. This raises the question of whether the tax authorities can still use this argument when assessing other Ukrainian applicants for the 30%-ruling. The lack of clarity on this point leaves room for further legal debate.

• Potential for Further Legal Challenges
  Given the evolving nature of this issue, further appeals or legislative clarifications may arise, especially as more Ukrainian refugees navigate similar situations in the Netherlands.

Conclusion

The Court of Appeal’s ruling reinforces the Dutch tax authorities' position that the 30% ruling is strictly for employees recruited from abroad. While the humanitarian context of the Ukrainian worker’s case was acknowledged, it did not override the legal residency requirements. This outcome highlights the importance of timing and residency considerations for expats and employers seeking to apply the 30% ruling.

As the legal landscape continues to develop, expats and HR professionals should carefully evaluate the eligibility criteria when applying for the 30% ruling, particularly in cases involving forced relocation due to conflict or other exceptional circumstances.

Hopefully the applicant will challenge this verdict and take the case to the Dutch Supreme Court. A decision at the highest judicial level could provide crucial guidance on whether the motivation for relocating to the Netherlands should play a role in determining eligibility for the 30%-ruling.