Background tax treaty
A tax treaty is an agreement between two countries and determines how these countries allocate of taxation rights in cross-border contexts. The definition of 'employer' in such tax treaties is essential, as it dictates which country is entitled to tax an employee's income. However, countries often interpret this term differently and interpret it differently in tax treaties concluded before or after July 22nd, 2010. This decree should therefore provide a definite answer to this question.
What does the decree change about the term 'employer'?
On December 21st, 2023, the State Secretary of Finance published a ruling on December 21st, 2023, refining the interpretation of 'employer' in tax treaties. This is an update to the earlier decree made in 2010 and follows an important Supreme Court ruling from 2022.
According to the Supreme Court's ruling, one must distinguish between tax treaties signed before and after July 22nd, 2010, when interpreting the term “employer”, because:
- For treaties before July 22nd, 2010, the Supreme Court rulings of 2006 continue to apply: you are an employer if you have a relationship of authority with your employee and the costs and risks are for your account as an employer.
- For treaties concluded after July 22nd, 2010, the OECD commentary regarding that particular treaty of that date is leading: the employer-employer relationship and individual cost pass-through no longer apply as conditions for the presence of an employer.
What does the decree say about short-term cross-border employment
Effective from January 1st, 2024, the decree includes guidelines for posting and the associated taxation, particularly in the context of short-term cross-border employment.
The decree also includes provisions regarding short-term cross-border employment.
For short-term assignments (60-day rule), the Netherlands grants approval under certain conditions to avoid double taxation for work outside the Netherlands. This approval particularly applies to intra-group assignments to the Netherlands. The decree states that if you meet the following criteria, that there is no Dutch employer under the labor article of tax treaties:
- The assignment is short-term and intra-group.
- The assignment lasts less than 60 working days in a 12-month period (even if the relevant tax treaty uses the 183-day rule per calendar or tax year).
- The employee stays in the Netherlands for less than 183 days.
- The assignment is incidental, and you may not consider it structural.
Note: the decree does not specify the exact criteria for when you should consider an assignment to be structural or incidental.
- The assignment takes place in the context of an exchange program, career development or because of specific expertise of the employee, as determined using the salary criterion for the 30% rule.
- The application of the exemption may not result in a double tax exemption.
What impact does this decree have on your organization?
This decree can have major implications for your organization, especially if you operate internationally. Therefore, study the specific tax treaties carefully and understand how to interpret the term "employer”. After all, this may affect the taxation of your cross-border employees' income.
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