On 01 January 2016 the new version of the double taxation treaty for The Netherlands and Germany has come into force. The new taxation treaty between the Netherlands and Germany is called: ‘Treaty between the Kingdom of the Netherlands and the Federal Republic of Germany to avoid double taxation and prevent tax evasion concerning taxes on income’.
The Netherlands and Germany are major trading partners in their bilateral relationship. The amount of business that takes place between the Netherlands and Germany can be found almost nowhere else in the world. It is becoming increasingly more commonplace that Dutch and German business operate on the same markets in order to realize their growth potential. Employees from Germany and the Netherlands, in particular in regions along the Dutch-German border are increasingly becoming more mobile on the international job market and are more willing to work on the opposite side of the border. In situations where money is made in another country than the employee lives in, taxation looms. The new taxation treaty Netherlands-Germany determines which country is allowed to tax income from the other country or income that is connected to the other country.
The new tax treaty replaces the old tax treaty that dates back to 1956. The contents of the new tax treaty aims to meet the international standards for bilateral tax treaties by the OECD. The new treaty’s goal is to prevent double taxation, as well as double non-taxation through misuse. A key item for Germany during the treaty negotiations was combatting situations of treaty abuse between the Netherlands and Germany. The Netherlands main point was improving the position of the Dutch cross-border employee and the Dutch director/majority shareholder.
The treaty with Germany determines which country has the authority to tax different types of income from employment and income from capital. In addition the treaty includes rules on the way to avoid double taxation, the mutual agreement procedure, exchange of information and assistance in collection of taxes. The Netherlands has introduced a unilateral compensation arrangement for the Dutch cross-border employee who is employed in Germany.
The tax treaty Netherlands-Germany consists of the treaty itself, an attachment with an agreement on how to deal with cross-border business parks/industrial areas, a protocol with elaboration of terms used in the treaty and a mutual agreement about an arbitration arrangement between the Netherlands and Germany.
The new tax treaty was signed by representatives of both countries on 12 April 2012. The treaty coming into force has long depended on the Dutch parliament’s approval. On 04 June 2015 the law approving the new tax treaty was published by the Netherlands. The new tax treaty with Germany then officially came into force on 01 January 2016. Residents from both The Netherlands and Germany were allowed to utilize the old treaty for the tax year 2016 if that was beneficial to their personal circumstances. From 01 January 2017 the new tax treaty has taken effect for all residents of the Netherlands and Germany.
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