Finance Ministry Decree On Redundancy Payments

The finance ministry has issued a decree on the conditions under which redundancy payments still rank for favourable tax treatment, despite continuing or additional benefits to ex-employees.

Redundancy payments to employees laid off are taxed on favourable terms, if the payment is not split over more than one tax year. A redundancy payment is seen as compensation for loss of future earnings rather than as consideration for past services rendered, so it would not be fair to charge it in full to tax at the top marginal rate in any one year. So at least the official explanation of the relief and the reason for not granting it when the payment is spread over more than one year. In practice, there are numerous borderline cases of payments or benefits inadvertently accruing in different years and so disentitling the redundant employee to the relief, if the provisions are taken literally. The ministry of...