The new Germany – Netherlands tax treaty

The new Germany-Netherlands tax treaty was signed on April 12, 2012 after many years of negotiations. The new treaty will replace the current treaty which dates from the year 1959. It is expected that the new treaty will take effect on January 1, 2014. When anyone already entitled to the 1959 tax treaty would have been entitled to greater treaty benefits under the ‘old’ treaty compared to the new, such a person may opt to apply the 1959 treaty for one more year starting from the date on which the new treaty enters into force.

Major deviations in the new treaty are the following:

the 2014 treaty defines Germany and The Netherlands included with the continental shelf. The new treaty also contains a special provision regarding offshore activities which last at least 30 days qualifying as a permanent establishment;
Any legal person (pension funds, foundations) which is duly incorporated to Dutch or German civil law and which is liable to corporate income tax in that state is eligible for the new tax treaty benefits;
Several withholding tax rates on cross-border profit distributions (dividends) will be decreased;
- 5% withholding tax for participation dividends distributed to a corporate shareholder which holds at least 10% of the shares;
- 10% withholding tax for gross dividends distributed to a pension fund which is established in The Netherlands;
- 15% withholding tax on gross dividends in all other cases;
- in case dividends are distributed after the emigration of a Dutch individual tax resident to Germany; the Dutch emigrant will be liable to tax for a period of ten years after emigration provided that the assessment on the appreciation of capital is still outstanding;
The withholding tax rate on interest and royalties will be 0% (same as in current treaty);
Capital gains derived by a resident of State I from the alienation of (non-listed) shares derived from more than 75% (in)directly from immovable property located in State II may be taxed in State II unless the resident already owned less than 50% of the shares prior to the first alienation or the gains are enjoyed in the course of a corporate reorganization;
Director’s fees and other remunerations earned by a resident of State I in his capacity as a member of the board of directors or commissioners of an entity that is a resident of State II may be taxed in State II;
Pension income including pension income provided under a social security system, annuities and similar income are only taxable in the residence state. However pension income will also be taxed in the source state (the state from which these payments are derived) if the payments exceed an amount of € 15,000 in any calendar year;
The new treaty consist of a compensation provision for Dutch frontier workers who are employed in Germany. This provision ensures that the tax burden of a Dutch frontier worker is equal to the tax burden of a Dutch tax resident employee who is solely pursuing employment in The Netherlands;
Germany grants double tax relief either by means of the exemption with progression method or the credit method (dividends (except participation dividends), director’s fees, capital gains. pension income);
The Netherlands grants relief through the application of the exemption with progression method. The credit method applies for passive income like dividends, interest and royalties, director’s fees and pension income;
Both states can apply their domestic anti-abuse provisions. Both states will consult each other if this provision will result in double (non) taxation;
In case of double (non) taxation resulting from a qualification conflict based on the law of both states they should find a solution via a mutual agreement procedure.

Please do not hesitate to contact us in case you have any question about the new Germany-Netherlands tax treaty.

You can call us +31 24 7600.136

Erik Jansen

Nijmegen
June 6, 2013