The additional levy on excessive severance payments

__________ Introduction

 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. 



 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. 



 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.