Allocation of travel days when applying tax treaties

The Supreme Court has provided practical guidelines for the allocation of travel days when applying tax treaties

The Supreme Court recently issued a ruling in a case concerning the allocation of salary subject to a tax treaty for work performed abroad. The case concerned a tax-resident of the Netherlands working for a foreign employer and was mainly about the question of how travel time for a business trip (other than commuting) should be divided between the home country and the employment country.  

Case

The party concerned, who in 2018 worked 158 days in total for his employer, performed some of his work in the country where the employer is based, in this case Saudi Arabia. During his period of employment he made several trips, including to "third countries" as they are commonly known. Under the tax treaty, Saudi Arabia has the right to levy tax on income related to work carried out in that country, while the Netherlands has the right to levy tax on income related to work performed outside Saudi Arabia. In dispute between the party concerned and the tax inspector was the question of how the travel days (other than commuting) should be apportioned when calculating the salary that could be attributed to Saudi Arabia. 

Supreme Court ruling

Firstly, the Supreme Court ruled that the time spent on the business trip should be regarded as time spent on fulfilling the employment contract, also to the extent that no activities are performed during the travel that are related to the employment. The Supreme Court argued that, for the sake of simplicity in the context of applying the treaty, half the travel time should be allocated to the country of departure and half to the country of arrival.  Also on the grounds of simplicity, any work that may have been done on the day of travel outside the travel time should not be taken into account. Only the departure country and the final country of arrival should be taken into account. 

This means that, as a rule, half of the day on which a business trip to another country is taken will be attributed to the country of departure and half to the country of final arrival, irrespective of the duration of the business trip and irrespective of any other work done on that day.