New tax treaty Belgium - the Netherlands published

On 21 June 2023, a new double taxation treaty was signed in Brussels between the Kingdom of Belgium and the Kingdom of the Netherlands. We list the most important changes for employers and employees for you.
 

Directors (company management)

The article for the distribution of taxation right on remuneration paid to company management has been amended. Company management is defined as a member of the board of directors, the supervisory board, or a similar body. As under the old treaty, the right to tax belongs to the country where the company is established.

What is new is that the article explicitly states that for other types of activities of the same person, Article 14 'Income from employment' applies. So if one individual receives part of the salary in the capacity of director, and part of the salary as a regular employee, then this division is respected when applying the tax treaty. This is in line with practice and underlines the importance of clearly recording in which capacity the salary is received.
 

Professors

Under the existing treaty, a separate provision is included for professors and other teaching staff at a university or recognized educational institution. On the basis of this article, the salary is taxed in the state of residence for the first two years.

Under the new treaty, there is no longer a separate article for teaching staff, which means that the standard income articles apply (employment – corporate profit – government function).
 

Artists and sportsmen

The special article for artists and sportsmen is also not included in the new treaty, which therefore falls under the article for employees or company profits. In a press release of 21 June 2023, the Dutch State Secretary Van Rij indicated that artists and sportsmen "do not owe tax in the other country in the event of a short-term performance across the border. They then pay tax on the related income in the country where they live." How we should interpret 'short-term' will probably follow in the joint explanation of the treaty by both countries.
 

No double non-taxation

The treaty states that the Netherlands does not grant the prevention of double taxation if Belgium exempts the relevant income component on the basis of the tax treaty. This was already regulated under the current treaty by declaring the so-called 'Multilateral Instrument' applicable to the treaty, but has been incorporated directly into the text of the new treaty.
 

No compensation scheme on income from stock options

As under the current treaty, the new treaty includes a compensation scheme for Dutch cross-border workers. If the combined Belgian-Dutch tax for the resident of the Netherlands is higher than if only Dutch taxes were applicable, the difference will be compensated.

In the new treaty, an exception has been made for income from stock options, insofar as the value thereof is taxed in Belgium in a different calendar year than in the Netherlands.

If stock options are granted and accepted within 60 days, these options are currently taxed in Belgium at the time of grant. In the Netherlands, benefits from stock options are only taxed when the options have been exercised and the shares are tradable. In the case of non-tradable shares, the employee can also opt for taxation at the time the option is exercised. In most cases, there are a number of years between the moment the stock option is granted and the moment the share option is exercised and/or the acquired shares are tradable. It is understandable that the Netherlands do not compensate for the higher Belgian tax burden in the year of grant, but it would be desirable to consider whether compensation is appropriate at the time of taxation in the Netherlands.

Dynamic treaty interpretation

On 14 October 2022, the Supreme Court in the Netherlands ruled that a treaty must be interpreted on the basis of the OECD commentary as it applied at the time the treaty was signed. This is also called the static treaty interpretation. This despite the fact that the Netherlands' fiscal treaty policy is based on a so-called dynamic treaty interpretation, i.e. if the OECD commentary changes, this new explanation also applies to existing tax treaties. Belgium also applies this dynamic interpretation of the treaty.

The 1st protocol to the new tax treaty now explicitly stipulates that the OECD commentary is applied as it applies at the time of applying the tax treaty: the dynamic treaty interpretation. Now that this is laid down in the protocol, the aforementioned judgment of 14 October 2022 does not apply to this new treaty.
 

What hasn't changed

Although many had hoped on beforehand for an adjustment of the pension article, this article remains unchanged. The main rule remains that the country of residence of the person receiving the pension may levy tax. Only under certain conditions, the source country may also levy – and the country of residence grants prevention of double taxation.

It was already known that no homeworking arrangement has been agreed (yet) in the new treaty. Negotiations on this are still ongoing between the two countries. The hope is that an agreement will be reached in the short term, which can then be incorporated into a new protocol for the treaty.