Table of Contents
1. Purpose
The purpose of this policy is to describe the principles governing the computation of additional income taxes and to establish a procedure for the reporting and reimbursement of such additional income taxes.
2. Policy
2.1 The company recognizes that employees, accepting foreign assignments, may incur additional income tax liabilities for foreign taxes solely because of the foreign assignment. It is, therefore, the company's intention to recompense the employee for such additional taxes in accordance with the definitions and procedures given below.
2.2 The company considers in this policy only Company remuneration as defined below and will not be responsible for taxes relating to property or wealth or any increases in local income tax caused by the employee.
3. Applicability
This policy and procedure applies to all employees of Company working outside the Netherlands
4. Responsibilities
4.1 Assignees are responsible for filing personal income tax returns and paying income taxes required by the Netherlands and/or any foreign country. Assignees are expected to file on a fiscal year basis.
4.2 The Accounting Department (or a tax advisor appointed by the company) will be responsible for the calculation of the tax protection payments and the determination of advances thereon.
4.3 The Director of Finance and Administration will be responsible for making reviews and determinations as called for in this policy.
5. Definitions
5.1 Company Remuneration
Company remuneration is the normal gross compensation (base salary, deferred salary and vacation allowance), overtime, foreign incentive, assignment allowance, and other company paid expenses like free housing, use of car, furniture allowance, schooling allowance, and the like, paid to the assignee solely by reason of the foreign assignment by Company.
For countries for which a gross taxable assignment allowance has been established, the assignment allowance will be excluded from the Company remuneration.
5.2 Actual Income Tax
5.2.1 Actual income tax is the actual total amount of foreign income tax paid during a period of assignment in a Netherlands fiscal year on the Company remuneration (see 5.1.1).
5.2.2 The actual income tax (of the Company remuneration excluding a gross taxable assignment allowance, see 5.1.2) is the actual amount of foreign income tax paid excluding the tax paid on the assignment allowance.
5.2.3 If the foreign fiscal year is not equal to the Netherlands fiscal year, the foreign tax paid will be prorated on the basis of the total Company remuneration during the period of the Netherlands fiscal year in which the assignment occurs.
5.3 Hypothetical Netherlands Income
5.3.1 The hypothetical Netherlands income during the period of a foreign assignment (A) will be based on the normal gross compensation plus overtime and incentive.
5.3.2 When a foreign assignment commences and/or terminates during a Netherlands fiscal year, the hypothetical Netherlands income for the period not on assignment (B) will be based on the assignee's normal gross taxable compensation during that period (thus excluding overtime, foreign incentive and allowances).
5.3.3 In order to determine the amount of reimbursement to which the assignee might be entitled for additional income tax liabilities, a hypothetical Netherlands income will be calculated for an entire Netherlands tax year (= A + B).
5.4 Tax Year
The comparison of actually paid foreign income taxes with a hypothetical Netherlands income tax will always be based on a Netherlands fiscal year (the Netherlands fiscal year is the same as the calendar year) irrespective of what the foreign official tax year is.
5.5 Hypothetical Netherlands Income Tax
5.5.1 Hypothetical Netherlands income tax (C) is the Netherlands income tax which would be due on the assignee's total hypothetical Netherlands income for the entire Netherlands tax year (A + B) for which the comparison is made.
5.5.2 When establishing the hypotheticalNetherlands income tax, the assignee's hypothetical Netherlands income will be reduced by the normal standard deductions and personal income tax deductions applicable within the scope of the existing Netherlands income tax legislation and regulations. The assignee will be required to provide valid evidence to support personal income tax deductions.
5.5.3 When a foreign assignment commences and/or terminates during a Netherlands fiscal year, the hypothetical Netherlands income tax for the assignment period (D) will be calculated as follows:
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D = C
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x
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___A___
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A+B
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In other words, the hypothetical Netherlands income tax for the period of the assignment is prorated on the basis of income ratios, and not time ratios.
6. Procedures
6.1 A provisional determination of the additional income tax liability is made at the time the actual foreign PAYE tax has to be paid or the actual foreign income tax return is filed by a tax advisor authorized by the company.
6.2 The company reimburses the assignee an amount equal to the excess of the assignee's actual income tax (see 5.2) over the Netherlands hypothetical income tax (see 5.5).
6.3 The company will make advances to the assignee on the compensation for additional tax liability when he is required to pay periodic installments on foreign income tax liabilities prior to the date on which the final re turn is due.
Employees wishing to apply for advance tax protection payments during a period of assignment shall complete attachment 1 of this policy and submit it to Company's Accounting Department before payments are made.
6.4 The total of such advances shall not exceed the final amount of the additional income tax liability. If the assignment is terminated during the course of a year, provisional settlement shall be made on the basis of a theoretical calculation. The Department Manager of the assignee shall inform the Manager of Personnel Accounting immediately when a change in the assignee's status is anticipated. The Manager of Personnel Accounting has to take all action required, i.e. inform personnel responsible for local payroll etc. in order to prevent that the company will not be able to recover overpaid tax advances.
6.5 Reimbursement for the excess tax shall be provisional pending, completion of a final assessment. Upon receipt of confirmation from the authorized tax advisor that no subsequent appeal has been lodged, the final settlement will be made between the company and the assignee.
6.6 The company will reimburse the assignee the costs incurred for foreign tax advisory assistance authorized by the company. The company will establish a maximum annual amount for such reimbursements, if required.
7. Social Security
7.1 If an assignee is legally obliged to pay for him and/or his authorized family, in addition to foreign income taxes, contributions for foreign social security insurances, for which he is already covered by legal or voluntarily continued Dutch social security acts, the company will reimburse him for such additional payments.
8. Attachments
1. Assumption of Liability - Advanced Tax Protection
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ASSUMPTION OF LIABILITY - ADVANCED TAX PROTECTION I,.............................................., confirm that by accepting advance tax protection payments in compliance with the tax protection policy of the assignment to .................................................. effective ............................................... , I assume the liability for and promise to pay the Company for any advance tax protection payments, which exceed the amounts to which I am entitled under the tax protection policy of this assignment. I further agree to promptly provide the Company with all information required in order to determine the proper amount of tax protection to which I am entitled.
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