Post by Sapphire Capital on Oct 29, 2008 20:26:33 GMT 4
Netherlands: New decree on relief for double taxation
The Dutch State Secretary of Finance has issued a new collective decree regarding the avoidance of double taxation under tax treaties and the tax regulation of the kingdom of the Netherlands. This decree holds an update and consolidation of a large number of previous decrees that were issued prescribing the technical manner of determining the relief for double taxation under tax treaties. A few specific decrees on this matter have not been included in the new collective decree and will continue to stay in force individually.
Compared to the previous decrees, this new decree also contains a number of policy amendments and new policy decisions.
One of the amendments involves the determination of the amount of tax credit available for interests received on bonds, when accrued interest is included in the purchase price and the sale price. Normally, the accrued interest included in the results of the sale of the bond would not be considered interest within the meaning of the tax treaty. This would limit the tax credit available for double taxation relief. The Dutch credit system would only allow for relief with regard to the amount of interest received minus the accrued interest included in the purchase price, while the foreign interest withholding tax is levied upon the amount of interest actually paid.
To provide for full relief of the foreign withholding tax, the decree approves that the accrued interest that has been sold with the bond could be added for the purposes of calculating the tax credit for double taxation regarding the interest. The calculation should take place per individual country. This approval only applies when the purchase and subsequent sale of the bond in which the accrued interest included in the price, takes place in the same year.
Furthermore, an important relief is made for situations in which there are differences in timing between the taxable moment in the Netherlands and the withholding of taxes on dividends, interest or royalties in the foreign country. In certain situations, the Dutch sound business practice would prescribe that profit should be taken into account earlier than the actual moment of payment of the income. At that moment, there is no credit available since there are no foreign taxes withheld yet. In the year of the actual receipt of the income however, the relief for double taxation is limited to the Dutch tax due on the income because of the system of the credit method.
The decree now provides for a credit for the foreign withholding taxes in the year of the actual payment of the income, even though the profits have been taken into account in the preceding year. The relief for foreign withholding taxes will be granted to the same amount as would have been granted if the Dutch taxation would have been in the same year as the levy of the withholding taxes.
Finally, an amendment is made with regard to the determination of the avoidance of double taxation regarding foreign employment income. In certain cases, the exemption for foreign employment income should be based upon a calculation of the days through a formula. This formula comes down to a fraction, in which the actual foreign working days and sick days (if the taxpayer would have been working abroad on that day) are divided by the calendar days of the year (365 or 366) less the weekend days and public holidays and less the annual (paid) holidays.
In accordance to a decision of the Dutch Supreme Court of 2005, the decree now prescribes that the number of holidays should be the number of days actually taken off work, and not the number of days holiday to which the employee is entitled by contract.
The new decree on the determination of relief for double taxation under tax treaties entered into force on August 9 2008 and has retroactive effect to July 18 2008.
Source: ITR - Price Waterhouse
Suzanne Boers (suzanne.boers@nl.pwc.com) Rotterdam
+31 10 407 6268
The Dutch State Secretary of Finance has issued a new collective decree regarding the avoidance of double taxation under tax treaties and the tax regulation of the kingdom of the Netherlands. This decree holds an update and consolidation of a large number of previous decrees that were issued prescribing the technical manner of determining the relief for double taxation under tax treaties. A few specific decrees on this matter have not been included in the new collective decree and will continue to stay in force individually.
Compared to the previous decrees, this new decree also contains a number of policy amendments and new policy decisions.
One of the amendments involves the determination of the amount of tax credit available for interests received on bonds, when accrued interest is included in the purchase price and the sale price. Normally, the accrued interest included in the results of the sale of the bond would not be considered interest within the meaning of the tax treaty. This would limit the tax credit available for double taxation relief. The Dutch credit system would only allow for relief with regard to the amount of interest received minus the accrued interest included in the purchase price, while the foreign interest withholding tax is levied upon the amount of interest actually paid.
To provide for full relief of the foreign withholding tax, the decree approves that the accrued interest that has been sold with the bond could be added for the purposes of calculating the tax credit for double taxation regarding the interest. The calculation should take place per individual country. This approval only applies when the purchase and subsequent sale of the bond in which the accrued interest included in the price, takes place in the same year.
Furthermore, an important relief is made for situations in which there are differences in timing between the taxable moment in the Netherlands and the withholding of taxes on dividends, interest or royalties in the foreign country. In certain situations, the Dutch sound business practice would prescribe that profit should be taken into account earlier than the actual moment of payment of the income. At that moment, there is no credit available since there are no foreign taxes withheld yet. In the year of the actual receipt of the income however, the relief for double taxation is limited to the Dutch tax due on the income because of the system of the credit method.
The decree now provides for a credit for the foreign withholding taxes in the year of the actual payment of the income, even though the profits have been taken into account in the preceding year. The relief for foreign withholding taxes will be granted to the same amount as would have been granted if the Dutch taxation would have been in the same year as the levy of the withholding taxes.
Finally, an amendment is made with regard to the determination of the avoidance of double taxation regarding foreign employment income. In certain cases, the exemption for foreign employment income should be based upon a calculation of the days through a formula. This formula comes down to a fraction, in which the actual foreign working days and sick days (if the taxpayer would have been working abroad on that day) are divided by the calendar days of the year (365 or 366) less the weekend days and public holidays and less the annual (paid) holidays.
In accordance to a decision of the Dutch Supreme Court of 2005, the decree now prescribes that the number of holidays should be the number of days actually taken off work, and not the number of days holiday to which the employee is entitled by contract.
The new decree on the determination of relief for double taxation under tax treaties entered into force on August 9 2008 and has retroactive effect to July 18 2008.
Source: ITR - Price Waterhouse
Suzanne Boers (suzanne.boers@nl.pwc.com) Rotterdam
+31 10 407 6268