International Assignments: Ratification of new UK - Netherlands double tax treaty
The Netherlands has taken the first step towards obtaining the necessary parliamentary approval for the new tax treaty signed between the Netherlands and the United Kingdom (the “New Tax Treaty”) by submitting it to the Lower House on September 23, 2009. The UK completed the procedures necessary to bring the New Tax Treaty into force earlier this year.
Parliamentary approval should be obtained in the Netherlands before the end of 2009. This is a prerequisite for the New Tax Treaty to have effect in the Netherlands from 1 January, 2010.
The key employment related changes that the New Tax Treaty will introduce are set out below:
Pension Schemes and Charities
Under the New Tax Treaty, pension schemes (‘pensioenregelingen’) qualify as a treaty resident.
The New Tax Treaty provides that directors' fees or other remuneration derived by a resident of one of the states from being a member of the board of directors ("bestuurder" or "commissaris") of a company resident in the other state, may be taxed in the resident state of the company but only to the extent that such remuneration is attributable to services provided in that state.
No treaty protection for non-remitted income and capital gains
The New Tax Treaty will extend the “remittance–basis” provision to include capital gains. This change will override Dutch Supreme Court case law under which the current remittance-basis provision does not prohibit the Current Tax Treaty from giving treaty protection for non-remitted capital gains.
The current tie-breaker clause for dual resident entities, pursuant to which the place of effective management is decided, is to be abolished. The New Tax Treaty provides for a mutual agreement procedure in the event of dual residency of an entity. In the absence of mutual agreement, the dual resident entity will not be considered as a resident of either the Netherlands or the UK for the purpose of claiming treaty benefits, except for the benefits of elimination of double taxation, non-discrimination and the mutual agreement procedure. The arbitration procedure cannot be applied by the dual resident in cases where no mutual agreement is reached.
The explanatory notes to the New Tax Treaty detail a grandfathering provision for existing dual resident entities governed by the current tie-breaker, which is in line with the grandfathering provision also set out in the UK explanatory memorandum. For existing dual resident entities, the Netherlands and the UK will not seek to revisit the treaty residency determined under the current tie-breaker clause provided all material facts and circumstances remain the same.
A special rule is introduced for entities which participate in so-called dual listed company arrangements. In such cases, the entity is deemed to be a resident only in the state in which it has been incorporated, provided it has its primary stock exchange listing in that state. A dual listed company arrangement refers (briefly) to two publicly listed entities with a separate legal entity status, but with stapled stock and operating as a single group.
For further information, please contact Peter Bos (email@example.com) on +31 20 578 57 85.
This article was produced by, and re-produced with kind permission of, our correspondent firm in The Netherlands, Loyens & Loeff N.V. www.loyensloeff.com
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