Tax assessment migrants possibly in breach of the tax treaties

19 January 2019

The Dutch first instance court Zeeland-West Brabant recently asked the Dutch Supreme court whether or not the Dutch legislation regarding tax assessments that are imposed on migrants is legal under the tax treaties.

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Written by:
Jeroen Geers Manager Tax Advisory
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If you are migrating from the Netherlands to another country, the Dutch tax authorities will impose a so called “protective tax assessment”, in case you built up pension rights in the Netherlands. This assessment will only be collected in cases that the Netherlands deemed illegal, such as paying out the pension in one lump sum rather than periodically. In the past there have been a lot of legal procedures regarding the protective assessement, which has led to several adjustments of the Dutch legislation. The question is whether or not the current legislation is in accordance with the tax treaties.  

The current legislation imposes a protective tax assessment to the amount of the paid deductable pemiums in the Netherlands on the moment of migration. The Dutch legislator intended to prevent the situation that the premiums are deducted from the Dutch income and thus lead to lower taxation in the Netherlands, while the entitlements or payments are taxed elsewhere (sometimes at a favorable rate). The question what country has the right to levy taxes after the moment of migation is governed by the tax treaties and not by Dutch legislation. The Dutch tax authorities are of the opinion that the tax treaties are not applicable, because the tax assessment is imposed on the moment directly before the taxpayer is migrating. In this case the paxpayer is still a resident in the Netherlands and the tax treaties can not prevent the Netherlands from levying taxes.

The question is whether or not this reasoning is in line with the tax treaties and European law. In earlier jurisprudence, the implementation of local (Dutch) legislation on the basis of the moment of migration of a taxpayer and that consequently lead to a change of right to levy taxes from the new country of residence to the Netherlands, was deemed illegal under the tax treaties. The court Zeeland-West Brabant posed this question to the Supreme Court. Another first instance court has already deemed the Dutch legislation on this point to be illegal under the tax treaties. This case is also to be decided by the Dutch Supreme Court. If the Supreme Court decides that the Dutch legislation is not in line with the tax treaties, this will have major consequences for migrating taxpayers. We will keep you informed.

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