WILLEMSTAD - A severance payment of 400,000 guilders must be treated entirely as taxable income. That is the ruling of the Court of First Instance of Curaçao in a case concerning the tax treatment of compensation awarded after a disrupted employment relationship.
The case involved a former statutory director who argued that only part of the payment should be taxed. She claimed that more than 200,000 guilders represented immaterial damages for the way the employment relationship ended, and therefore should not be counted as income attributable to her job.
Court Rejects Argument for Non-Taxable Damages
The court dismissed that argument. It noted that the compensation had been determined by the Joint Court of Justice based on the director’s most recent salary, including vacation allowance and Christmas bonus. This, the court said, demonstrated that the payment “so clearly has its basis in the employment relationship” that it must be considered fully taxable wages.
The judge further ruled that psychological distress connected to leaving a position does not constitute a separate basis for a tax-free payment.
Partial Refund Due to Withheld Tax
Because the employer had already withheld NAf 116,250 in wage tax for 2021, the claimant is entitled to a refund — but only from that amount. The court ordered the Tax Inspector to issue a revised assessment, resulting in a refund of NAf 64,326.
The AOV/AWW premium assessment remains unchanged.
For the AVBZ premium, the taxpayer will receive a refund of NAf 739.
Costs Awarded in Appeal
The court ruled that the Tax Office does not need to reimburse legal costs for the objection phase. However, in the appeal phase, the Inspector must pay NAf 2,100 in legal costs and NAf 100 in court fees.