On April 12, 2012 a new tax treaty was signed between the Netherlands and Germany (hereinafter “new treaty”). We discussed a few important aspects of this in our news item dated April 2012. The memorandum attached below provides an update of the current situation with respect to the new treaty. In addition, for frequent topics the appendix includes a summary of the changes in the new treaty in relation to the existing treaty.
Approval of the new treaty by the Upper House
The ratification process in the Netherlands has taken longer than expected, but is now almost complete. The Upper House of the Dutch Parliament approved the proposal on May 19, 2015. All that now remains is the formal ratification, with our firm expectation being that this can quickly be completed so that the new treaty will apply with effect from January 1, 2016. The new treaty replaces the current one, which dates back to 1959. Parts of it differ from the current treaty and could entail significant changes to the taxation of your income or assets.
Reasons for the long approval process
Germany approved the new treaty earlier on. It was submitted to the Dutch parliament for approval in April 2013. For a long time the expectation was that the treaty would come into effect on January 1, 2014; this later became January 1, 2015. Its reading subsequently came to a standstill on several occasions, however. The reason was that in retrospect the Netherlands found that a number of specific changes in taxation resulting from the new tax treaty were undesirable and amended them temporarily or in their entirety. This includes the introduction of a transitional arrangement for pensioners resident in Germany who will become liable for tax on their Dutch pension in the Netherlands under the new treaty. In addition, a protocol amending the treaty has been negotiated between the Netherlands and Germany with the aim of ensuring that the taxation of salary in connection with employment aboard a ship or aircraft operating internationally continues to be taxed in the country where the shipping or airline company has its place of effective management.
Option of postponing new treaty by one year
It should be noted that the new treaty provides for the option of postponing the implementation by one year, i.e. until January 1, 2017. This option is available for individuals whose tax position is worse under the new treaty than is now the case under the current treaty.
Impact of the new treaty on your situation
As the new tax treaty is expected to apply from January 1, 2016, it is important to assess its effect on your taxation so that action can still be taken where necessary. The new treaty contains many detailed arrangements that are not described in either this memorandum or that of April 2012. Your contact at Meijburg & Co will be happy to advise you on the possible impact of the new treaty on your specific situation.