Tax advice relating to tax treaties

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If, as a resident of the Netherlands, you receive income from another country, then there is a sizeable chance that both countries charge tax on that income. This is also the case if you live in another country and receive income from specific sources in the Netherlands. In order to avoid such double taxation, the Netherlands has concluded tax treaties with around 95 countries. The content of these differs per treaty. Meijburg & Co’s experts can help you not to lose your way among the regulations.

Crossborder income and taxes

Residents of the Netherlands must pay tax on all of their income, regardless of where it comes from. You also may have to pay tax in foreign countries if your income has originated there. The same rule may apply in the opposite situation, which is how double or even multiple taxation may arise. As previously mentioned, in order to avoid this, the Netherlands has concluded tax treaties with around 95 countries.

What actually constitutes income from the Netherlands if you –individual or company - are resident abroad? In any case, it includes income derived from the following sources:

  • Employment performed in the Netherlands.
  • Letting of a second home or other immovable property located in the Netherlands.
  • A branch of a business or permanent representative
  • Income and capital gains from a substantial shareholding.

Tax treaties

What exactly do these tax treaties involve? These treaties are agreements between two countries. In them is laid down which party has the right to raise tax on certain incomes and capital gains. The content thereof varies per tax treaty. This means that you need to assess which country is allowed to impose tax, and how much, on a case-by-case basis. This is often quite complex. That’s why our specialists are here to help you.

The BEPS instrument as a means of combatting tax avoidance

Initially, tax treaties were mainly focussed on preventing double taxation. However, it became increasingly apparent that the agreements could also lead to double non-taxation. The cause of this is that the tax systems of different countries sometimes vary considerably from one another. Various companies and people were astute in exploiting this, resulting in increased losses to different countries’ tax revenues.

To counteract this tax avoidance, the OECD established the BEPS action plan. This action plan is intended to combat tax avoidance via base erosion and profit shifting (BEPS). It comprises fifteen national and international measures in total. These BEPS measures are aimed at taxing the profits at the source of economic activity.

MLI: no more abuse of tax treaties

Some of the BEPS measures concern the curtailment of tax treaty abuse. For example, you are no longer able to claim entitlement to advantages under a tax treaty when your main intention is the avoidance of tax. This part of the action plan is known as the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting, sometimes abbreviated to BEPS Multilateral Instrument (MLI).

Imagine the following situation. You have to deal with a dividend payment, which originates from a company located in a country that is party to a tax treaty. There is a chance that your company will no longer fall under that country’s dividend payment exemption or reduction regime (granted under the tax treaty). This risk is particularly large where the parent company is viewed as a letterbox company. Such is the case when the parent company has exceedingly little or no material presence (or substance) in a given country.

Need advice on tax treaties?

Do you require tax advice on how to apply tax treaty regulations most effectively to your international activities? Would you like more information on BEPS or MLI and the consequences of these for your business? Meijburg & Co’s specialists are here to help you. With our vast knowledge and experience, we can provide you with expert advice. Feel free to contact us for more information.

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