Recently several newspapers reported that Heineken incurred a significant additional tax levy in connection with the severance payment to its former CEO. While he received EUR 5.5 mio, taxes due by Heineken amounted to EUR 7 mio, primarily as a result of the additional employers levy that applies to so-called excessive severance payments.
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Background
The additional employers levy on excessive severance payments was enacted on 1 January 2009 as part of a set of rules on executive remuneration. If applicable, next to regular wage tax (49.5%, 2021) of the severance payment with the employee, the employer incurs an additional 75% levy on the part of a severance payment deemed excessive.
To “trigger” the additional employers levy, the taxable wage of the employee that is terminated must exceed EUR 568,000 in the second year prior (T-2) to the year of termination (T). If this threshold is exceeded, rather complex calculations must be made to determine what part (if any) of a severance payment is subject to the additional employers levy. The provisions contain specific measures to tackle avoidance with only limited exceptions.
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Advice
We often see that parties overlook this additional levy. If an executive employee receives a significant severance payment, we recommend to determine whether this levy may apply through a preliminary high-level calculation. If so, there are various ways to reduce the additional tax burden, for instance by shifting the termination date to another year.
