New decree on the allocation of severance payments in an international context

On December 15, 2023 the Ministry of Finance published a new decree on the allocation of taxing rights in respect of severance payments in an international context. The decree took effect on January 1, 2024. An earlier judgment[1] by the Dutch Supreme Court was the reason for this new decree.

The new decree updates the decree of January 25, 2022[2]. Under the old decree, the power to tax a severance payment is allocated on the basis of the total employment history of an employee. Based on the aforementioned Supreme Court judgment, the Deputy Minister of Finance is of the opinion that with regard to the allocation of severance payments, a distinction can be made between tax treaties concluded before or after July 15, 2014.

• For tax treaties signed before July 15, 2014, a severance payment will be allocated based on the current calendar year and the four preceding calendar years (the ‘4+ method’).
• For tax treaties signed after July 15, 2014, allocation will be based on the total employment history of the employee. 

Approval

The 4+ method may lead to (partial) double taxation if the other treaty country allocates on the basis of the entire employment history. The decree therefore contains an approval that if the application of the 4+ method leads to (partial) double taxation, the severance payment may be allocated on the basis of the entire employment history. This is subject to the condition that there is no (partial) double non-taxation. 

Practical consequences

The position taken by the Deputy Minister of Finance has made the division of the power to tax severance payments in an international context more complicated. Therefore, always seek out sound advice beforehand and ensure you contact us on time.

[1] ECLI:NL:HR:2022:1436, 21/00747

[2] Decree of January 25, 2022, no. 2022-19850