“De geschiedenis herhaalt zich” - If it happened once, it can happen again
Both experts and expats agree that, by breaking the current promise that the Dutch government has made with current recipients of the 30% rule, there will be severe and lasting consequences at both an economic and individual level.
The Economic Impact
- Creates an Uncertain Tax Environment. When setting tax legislation, it is important to create certainty in a tax environment. Businesses cannot make an investment if tax legislation is uncertain. That is why corporate and individual tax rates are always changed with application to future years. It is undesirable to make changes that affect existing rulings. The people impacted are not able to make informed decisions. It is particularly unpalatable in this case as it affects people’s lives. Decisions were made to move country, pull children out of school, buy houses, all on a promise from the Dutch government. These are productive contributors to Dutch society, being treated in an unusually cruel and unfair manner.
- Penalizes Existing Companies. Companies that employ highly skilled expats could be penalized or experience other legal ramifications as their affected employees will likely require higher salaries, otherwise these talented and skilled expats will need to leave the country since they will be unable meet their financial commitments when their net salary is suddenly and significantly reduced.
- Decreases Attractiveness among International Business Community. The ruling will be perceived as negative by the international business community. The original tax law was created specifically to recruit skilled expats in order to ensure the Netherlands is a fierce competitor in the global knowledge economy. Many current skilled expats will no longer find the Netherlands an attractive place for employment and will opt to leave the country, and thus create a shortage of highly skilled talent.
- Hurts Goal of Knowledge Economy. It is a stated objective to enhance the position of the Netherlands as a knowledge economy. The statement from Amsterdam city is an illustration of the policy: “Increasingly, businesses in the Netherlands and abroad are choosing to settle in areas that offer a large pool of highly skilled talent. To ensure continued economic growth, it is vital that Amsterdam and the greater Amsterdam Metropolitan Area remain competitive at both regional and international levels. This can be accomplished by developing and strengthening talent as effectively as possible, focusing on attracting and retaining international talent, and promoting Amsterdam as an innovative knowledge centre.” The application of this ruling to current expats will cause severe damage to efforts designed to attract international talent.
- Harms Recruitment of Highly Skilled Talent. Companies will have a far more difficult time recruiting highly skilled talent since the Netherland’s reputation as a trustful employer will be dramatically reduced. As the saying goes, “de geschiedenis herhaalt zich” (if it happened once, it can happen again). Many organizations use the availability and access to skilled expats as a key selling point to recruit businesses to invest and open offices here in the Netherlands. These organizations employ a great number of individuals, expats and non-expats, and may opt to take their business elsewhere – increasing unemployment and resulting in a loss of tax revenue.
- Discourages Investment in Country. The companies employing expats are making a real contribution to the economy. They are paying office rent, buying materials, paying taxes and social charges, and buildings teams of skilled workers in the Netherlands. This is what the goal of the policy should be. Changing the existing policy so that current expats are affected may discourage real investments into the Netherlands.
- Leads to Distrust among Highly Skilled Talent. Skilled workers considering the Netherlands will be aware that the ruling was changed from 8 and 10 years to 5 years and that this change affected current recipients. As such, not much weight will be given to the 5 years ruling, as people will not trust that it will be in place for the 5 years.
- Weakens Competitiveness of Country. As a result of this proposed tax policy affecting current recipients, talents might become in shortage and growth may stagnate – which could create a domino effect impacting the entire country competitiveness within the EU.
The Dutch government has always placed a priority on ensuring its business climate is attractive and competitive. Indeed, it is one of the reasons so many highly skilled expats have opted to call the Netherlands their home away from home. As noted by tax experts at PwC, the 30% rule has a ‘charisma’ abroad and its importance should not be underestimated – such an abrupt change without any transitional regulation will be perceived as negative by the international business community.
Put simply: the decision to break an existing deal with both its highly skilled community and very well established businesses in an effort to save 0.1% is bad business.