- Benefit From a Collective Accident Insurance Taxable
- September 10, 2010 | Authors: Patrick Rietbroek; Eugene Weultjes
- Law Firm: Greenberg Traurig, LLP - Amsterdam Office
A claim usually includes the right to a payment of wages in the future. If the claim is a benefit due to death or disability of the employee, the claim does not constitute taxable wages in the hands of the employee if payment of the benefit is caused by an accident. Nor is the provision of a claim to accident insurance taxable if the benefit is paid only if the accident has occurred during the fulfillment of employment.
A recent ruling of the Court of Appeal The Hague again demonstrates that these are two distinct cases. The case concerned an employee who died after an accident that occurred outside of regular working hours. On behalf of all employees, the employer had purchased a collective accident insurance policy that provided for 24-hour coverage. Under the policy, activities unrelated to employment were excluded. Due to the employee’s death, the spouse, as the beneficiary, received € 50,000 from the insurance company. The employer withheld wage taxes on the benefit payment.
The spouse appealed against the withholding of wage taxes, claiming that payment, according to societal views, is not perceived as remuneration and, as such, not taxable. She also held the opinion that the claim could be tax free (and the benefit consequently taxable) only if the benefit is paid due to an accident during the fulfillment of employment. According to the spouse, the claim, therefore, had to be taxed and the benefit should be tax free.
The Court of Appeal responded hereto that two distinct tax exemptions are included in the Dutch wage tax act:
The first tax exemption concerns claims to a benefit due to death or disability following an accident. In this respect, it is not relevant that the accident causing the death or disability has taken place during the fulfillment of employment. Whereby the benefit paid in case of death of the employee is tax free insofar as the amount does not exceed three times the wages of one month.
The second tax exemption is for the provision of a claim to accident insurance if the insurance covers only accidents during the fulfillment of employment, regardless of whether death or disability was caused by the accident. Again, if then the benefit is paid because of the death of the employee, the benefit is taxable insofar as it exceeds three times the wages of one month.
As the claim to a benefit, due to the death of the employee, was paid under the collective accident insurance with 24-hour coverage, the Court of Appeal ruled that the first tax exemption applied and the claim was tax free and the benefit (partly) taxable.