A director-shareholder (DGA) receives an annual salary of €122,486. However, his management company invoices €260,520 to the group. The Dutch Tax Authorities adjust the DGA’s salary to €215,239, equal to the salary of the highest-earning employee. The legal question is whether a comparison with lower-paid branch directors is valid or whether the adjustment is justified. The court of appeal provides a clear answer, placing the burden of proof on the DGA.
Facts
The director-shareholder (DGA) manages a group consisting of 15 companies. He refers to himself as “group director” and “boss.” The group employs 158 people and generates an annual turnover of €15.9 million. Despite this, the DGA receives a salary of only €122,486, while his management BV invoices €260,520 to the group. In addition, the current account debt owed by the DGA to the BV increases annually, rising from €385,475 in 2013 to €600,655 in 2018. This growing debt is a significant element in the case.
The highest-paid employee earns €215,239. This “director” has limited authority and is not a statutory director. His signing authority is restricted to €400,000 for quotations and €50,000 for procurement. The DGA argues that branch directors at other companies earn only between €120,000 and €126,000. To support this claim, he submits letters and emails as evidence. According to him, these directors manage organisations of comparable size and complexity. He uses this argument to contest the upward adjustment of his salary.
Judges’ ruling
The court of appeal rules that the DGA fails to make his claim plausible. For the years 2013–2014, the DGA does not prove that a lower salary is customary. For the years 2015–2017, he fails to demonstrate that the salary of the highest-paid employee exceeds 75% of comparable positions. These different legal standards result from a legislative amendment that took effect in 2015.
According to the court, branch directors differ from the DGA for three reasons:
- They are not statutory directors
- They have limited authority;
- They do not bear overall responsibility
The submitted correspondence does not convince the court. The DGA merely asks whether his self-prepared job description matches that of branch directors. He does not ask them to describe their roles themselves. The court considers responsibilities more important than company size when making comparisons. The statutory position of the DGA also weighs heavily in the judgment. The growing current account debt supports the court’s view that the salary is too low. According to the court, the continuity of the business would not be jeopardized by a higher salary. The shareholder position plays a significant role in this assessment. The available fiscal profit reserves provide sufficient room for a salary adjustment.
The Supreme Court upholds the ruling. It considers the DGA’s objections insufficiently relevant for substantive review. This strengthens the precedential value of the case.
Conclusion
A director-shareholder (DGA) must provide solid evidence that the roles used for comparison are truly comparable. Statutory responsibilities and ultimate accountability carry significant weight. A similar job title or a comparable number of subordinates is not sufficient. The burden of proof lies with the DGA, who must submit concrete and complete information.
