Employment Relief Measures - The NOW: Dutch regulation for compensation of the wage costs during the Covid-19 crisis

Decrease in turnover

In order to qualify for the subsidy, the employer must demonstrate an expected decrease in turnover of at least 20% during a measurement period of three consecutive months in the period between 1 March 2020 and 31 July 2020, starting on 1 March, 1 April or 1 May 2020, to be selected by the employer. The option to calculate the decrease in turnover as of 1 April 2020 or 1 May 2020 has been added because the financial consequences of the Covid-19 crisis may not be immediately visible.

The decrease in turnover will be calculated by comparing the reference turnover (the turnover in 2019 divided by 4) against the turnover during the measurement period².

Please note that in case of companies belonging to a group, the decrease in turnover will be determined at group level. For the purpose of calculation of the decrease in turnover at group level, the decrease in turnover of the foreign legal entities within the group will not be taken into account if the foreign entity does not pay wage for social insurance purposes (SV-loon). Finally, please note that although the decrease of turnover is determined at a group level, each legal entity with a payroll tax number has to apply for the subsidy separately

Amount of the NOW subsidy

The NOW enables employers to apply for a compensation of up to 90% of the wage sum³. In principle, the subsidy to be granted will be based on the wage bill of January 2020⁴.

The amount of the compensation will be calculated on the basis of the formula A * B * 3 * 1.3 * 0.9:

• A is the percentage of the expected decrease in turnover.
• B is the total wage sum (on the basis of which the employee insurance contributions are paid, but capped at EUR 9,538 gross per month per employee: salary above this amount will not be included in the relevant wage sums and will therefore not be compensated).
• The outcome of A * B will be multiplied with factor 3, because the subsidy will be provided by the UWV during a period of three months.
• This outcome will be multiplied with factor 1.3. This is a fixed factor in order to also reckon with various employers costs which are not included in the wage for social insurance purposes, such as holiday allowance and pension contributions.
• The above sum will be multiplied with a factor 0.9.

Before 1 June 2020, the Dutch Government will decide whether or not the subsidy will be extended, possibly on the basis of more stringent conditions.

Obligations for the employer when receiving the NOW subsidy

If an employer has been granted a NOW subsidy, a number of obligations will have to be observed. Most importantly the employer:

• should endeavor to keep the wage bill as equal as possible;
• may not apply for a dismissal permit for business economic reasons during the period of the NOW subsidy. Please note, however, that based on the wordings of the NOW it is still possible to apply for permission but this is sanctioned (see below). It is allowed to terminate employment agreements by mutual consent. In addition, employers can decide not to renew fixed-term employment agreements and to terminate an employment agreement during the probationary period. Please note, however, that this may have consequences for the final amount of the subsidy. On a side note, if an employer decides not to make use of the NOW and applies for a dismissal permit for business economic reasons, the employer needs to substantiate that dismissal cannot be prevented by applying for a NOW subsidy;
• should use the subsidy exclusively for the payment of the wage costs;
• is obliged to inform⁵ the works council, the employee representative body or, in the absence thereof, the employees about the awarded NOW subsidy; and
• should keep proper records to enable the UWV to properly determine the subsidy afterwards.

Sanctions

The NOW subsidy may by (partly) reclaimed by the UWV if the employer has not observed the above mentioned obligations or if it appears that the subsidy has been wrongly granted, or that the amount of the subsidy is excessive, for example, due to incorrect or false information provided by the employer during the application procedure. Furthermore, the subsidy can be withdrawn or amended to the detriment of the employer if the employer has acted contrary to the purpose of the NOW during or after the period for which the NOW subsidy has been granted.

In addition, an employer who's entitled to the NOW subsidy can still start dismissal proceedings with the UWV to terminate the employment agreement with one or more employees, but in that case, a fine will be imposed by the UWV. The UWV will deduct 150% of the salary of the particular employee(s) received during the period 1 March – 31 May 2020 from the subsidy as initially awarded when determining the final subsidy.⁶

Procedure

It is possible to apply for a NOW subsidy by completing a digital form via this link on the UWV website.

After the NOW subsidy has been granted, the UWV will pay out an advance payment equal to 80% of the granted NOW subsidy in three instalments. The aim is to pay the first instalments of the advance payment within two to four weeks after the application.

Within 24 weeks after the end of the measurement period, the employer has to apply for a final determination of the NOW subsidy⁷. This will – in principle – require an audit report, but it will be clarified at a later stage when an auditor's report will not be required.

The final subsidy will be determined by the UWV within 52 weeks after the application for determination by the employer, based on the actual wage costs in the period March 2020 - May 2020 and may involve a recovery of payments or an additional payment.

Conclusion

The NOW supports employers, who are confronted with a sudden decrease of turnover of at least 20%, to continue to pay the salary of their employees. When making use of the NOW, employers will have to observe a number of obligations, especially not to apply for a dismissal permit based on business economic reasons, and to keep the wage bill as equal as possible, and to inform the employee representative body or the employees. We will be happy to advise you in more detail on the NOW subsidy.

Tax Relief Measures

As part of the Coronavirus package, entrepreneurs will be provided the possibility to obtain an extension of payment for any amount of personal income tax, corporate income tax, wage tax, VAT, excise duties, insurance premiums tax, health care contributions, environmental taxes, gambling tax, and certain other taxes due. Dividend withholding tax does not qualify for the extension and should be paid when due. This extension shall also cause collection measures to be immediately suspended. Such extension of payment must be requested in writing with the Dutch tax authorities via an electronic form or ordinary mail and is processed manually (which may cause a delay). Initially, the extension will be automatically granted for a period of three months as from the moment of the request and shall apply for all assessments imposed for the relevant tax if the tax payer indicates that it has financial issues caused by the Coronavirus. The request and whether the conditions are met will be reviewed in substance at a later stage (for an extension longer than three months concerning an amount higher than EUR 20,000 a third party expert opinion will be required). Under these circumstances the Dutch tax authorities shall not impose a penalty for late payment (verzuimboete) or if still imposed, shall nullify such penalty.

Any extension request made by the director of a commercial enterprise in the form of a legal entity subject to corporate income tax is in principle considered by the Dutch tax authorities to be a notification of the entity's inability to timely pay wage tax and VAT, potentially giving certain protection to the directors of such entity against liability for tax collection purposes. Such notification will be assessed separately by the Dutch tax authorities.

In addition, as a more general measure, for any amount of tax due by entrepreneurs, both the statutory interest (belastingrente) as well as the tax collection interest (invorderingsrente) shall be temporarily charged at a rate of 0.01%. This reduced statutory interest rate will apply as from 1 June 2020 for all relevant taxes save for personal income tax for which the reduced rate shall apply as from 1 July 2020. The reduced tax collection interest rate will be applicable as from 23 March 2020.

Moreover, and not particularly linked to the Coronavirus, entrepreneurs are allowed to request a reduction of preliminary assessments for personal income tax and corporate income tax purposes. Such reduction can reflect the newly expected income and profit levels and thus reduce current payment obligations for taxpayers. If previous amounts of tax due have already been paid and exceed the newly preliminary assessed amount, the difference shall be refunded.

It may very well be that more measures will follow and/or tweaks will be made, as the administration indicates that the current set of measures is part of a dynamic package.

Financing Relief Measures

Additional measures in relation to the financing of companies

On 7 April 2020, the Dutch administration announced additional measures in relation to the financing of companies. We will briefly discuss the measures in relation to (i) the Corporate Finance Guarantee Scheme ("GO Scheme") and (ii) the Government-Guaranteed Scheme For Small and Medium-Sized Enterprises (Borgstelling MKB-kredieten) (the "SME Guarantee Scheme").

GO Scheme

With the GO Scheme the Dutch administration helps small and medium-sized enterprises ("SME's") and big enterprises by providing a guarantee on bank loans and bank guarantees. Recently, the budget for this guarantee scheme was already extended to EUR 1.5 billion to help companies affected by the Corona Virus. Also, the maximum amount to which this scheme would be applicable was broadened to cover loans up to EUR 150 million. However, it now appears that, due to the severe consequences of the Corona Virus, the current parameters of this scheme are no longer sufficient to keep lending to SME's and big companies adequately flowing. Therefore, the Dutch administration decided to add a temporary 'Corona module' to the GO Scheme (the "GO-C Scheme"). The guarantee percentage of the GO-C Scheme will be 90% for companies with a maximum turnover of less than EUR 50 million and 80% for companies with a turnover of EUR 50 million and more. Also, the scheme's overall budget will be extended to 10 billion euro. The loans under the GO-C Scheme will have a maximum tenor of three years.

Changes to the SME Guarantee Scheme

The Dutch administration also announced modifications in relation to the SME Guarantee Scheme. The Dutch administration decided that it will lower the commission for the 'Corona module' from 3.9% to 2%. With this reduction financing should become more accessible to entrepreneurs. The Dutch administration also emphasises that banks should carefully consider whether the costs that they are charging their clients are (given the current circumstances) realistic. Finally, this scheme's overall budget was limited to EUR 765 million. The new measures by the Dutch administration seek to extend the overall budget to EUR 1.5 billion.

Footnotes:

1 https://www.engage.hoganlovells.com/knowledgeservices/news/coronavirus-covid-19-update-measures-adopted-by-the-dutch-administration-for-companies-being-financially-affected-by-the-coronavirus.

2 Please note that if the employing entity was not established yet on 1 January 2019 a different reference turnover provision applies, namely the turnover realized in the period from the first calendar month after the day of the establishment of the employment entity up to, and including, 29 February 2020, divided by the number of months during which the company generated turnover (the moment when the business operations have commenced), multiplied by three (article 6 NOW).

3 For example, if the turnover loss is 100%, the compensation will amount to 90% of wages. If the turnover loss is 50%, the compensation will amount to 45% of wages and if the turnover loss is 25%, the compensation will amount to 22.5% of wages.

4 The NOW defines wages as "wages under Article 16 of the Dutch Social Insurance Financing Act". This does not only include the gross base salary, but also other components paid under the employment agreement, such as commissions, (performance) bonuses and overtime pay. The monthly holiday allowance is not included.

5 This information obligation does not refer to the right of advice or the right of consent of the Works Council or employee representative body.

6 If an employer already submitted a request for dismissal with the UWV in the period between 17 March 2020 up to, and including, 31 March 2020, the employer will be given the opportunity by the UWV to withdraw this request ultimately on 7 April 2020 in order to prevent the above mentioned sanction. If the employer has applied for a dismissal permit after 31 March 2020 the employer can withdraw this within five working days after the date on which the request for a dismissal permit was submitted to prevent such fine. The wage subsidy will be reduced with the wage sum of the dismissed employees * 1,5 * 1,3 * 0,9.

7 Please note that if no request for a final determination of the subsidy has been submitted within 24 weeks after the measurement period, the NOW subsidy will be withdrawn. As a result, the advance payment of the NOW subsidy will be unduly paid and can be fully reclaimed by the UWV (article 14 NOW).

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