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An employee inquired whether a company could apply a withholding tax rate based on a bonus from the previous year that will ultimately not be paid. The Directorate General for Taxes (DGT) ruled that if circumstances exist to objectively prove a reduction in variable remuneration, the payer must not include such amounts when calculating the withholding tax base.
Employers and payroll departments must ensure they have objective evidence of reduced variable pay to adjust withholding rates correctly and avoid future tax regularisation issues for employees.
The tax team reviews your specific situation.
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