A radiologist works for a BV of which he himself and 32 other radiologists are shareholders for less than 5% each. In consultation with the tax authorities, they have converted their partnership into the BV. For 94%, the BV's turnover consists of remuneration for work at three hospitals. The BV pays the radiologist salary and fees totalling €117,000 and a dividend of €69,000. The tax authorities classify the dividend as salary.
How should the dividend paid by the BV be qualified for tax purposes?
The tax authorities argue that the dividend paid should be qualified as salary for tax purposes. Because of the connection between the shareholding and the employment, the high return on the shares, the low, non-market salary and the turnover of the BV, which comes almost entirely from the shareholders' employment activities, it is reasonable to attribute the dividend to the employment.
The radiologist argues that there is no legal basis to qualify the dividend as wages for tax purposes.
According to the law, wages are all that is enjoyed from an employment or former employment, including what is paid or provided in the context of the employment. The source of the income is not the work, but the employment. The concept of wages is broader than only what is enjoyed as remuneration for work. For example, wages may consist solely of a share in profits.
A reasonable allocation of the burden of proof implies that, given the radiologist's reasoned challenge, the tax authorities must make it plausible that, for tax purposes, the dividend paid by the BV is based on the employment relationship to such an extent that it should be regarded as enjoyed from it.
Judge's considerations
The court considered that only persons registered as radiologists and employed by the BV can be shareholders of the BV. The extent of shareholding is equal to the extent of employment. When a shareholder starts working more, he is obliged to buy additional shares and when he starts working less, he is obliged to sell shares. In addition, among other things, the shareholder is obliged to offer all his shares when the employment relationship with the BV is terminated. The court deduces that the radiologist's shareholding is inextricably linked to his employment with the BV. The fact that not everyone who is employed by the BV is also a shareholder does not alter this. After all, the point is to assess whether the amounts received by the radiologist can be regarded as salary from employment.
The court further considered that the turnover of the BV was achieved almost entirely through the work performed by the employees, who are also shareholders, as part of their employment. The only reason the shareholders can realise such a return (minimum 76% as claimed by the radiologist) is because of the work they perform for the BV as part of their employment.
Judge's ruling
In view of the foregoing, the court held that the Tax Authorities had made it plausible that the dividend paid by the BV was based on the employment relationship to such an extent that it should be regarded as enjoyed therefrom. This means that the Inland Revenue was right to regard the dividend paid as salary.
Note: Thus, this scheme by the former radiologists' partnership to enjoy income from their work for the hospitals partly in a tax-friendly manner fails. The tax pay concept is much broader than previously estimated and can therefore include dividends.
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