Netherlands and Taxation of Certain Inter-Company Assignees
On January 20, 2010, the Netherlands’ Deputy Minister of Finance issued a decree (nr. DGB2010/267M) which potentially impacts inter-company assignments to the Netherlands. According to the new decree, employees of foreign companies who are resident in a tax treaty country and are assigned to the Netherlands within an international group, are exempt from Dutch personal income tax on their employment income if they work in the Netherlands for 60 days or less in a 12-month period.
Tax treaties allocate the right to levy personal income tax on employment income arising from cross-border assignments to either the employee’s country of residence or the country of employment. Tax treaties provide a 183-day rule. Under this rule, the employment income of an employee who is assigned to the Netherlands is only subject to home country personal income tax and exempt from Dutch personal income tax if the following cumulative conditions are met:
1. The assignee’s stay in the Netherlands does not exceed 183 days in a calendar year or a 12-month period (differs per treaty).
2. The salary is not paid by or on behalf of a Dutch employer during that period.
3. The employment costs are not borne by the foreign employer’s Dutch permanent establishment during the period of assignment.
On December 1, 2006, the Dutch Supreme Court (Hoge Raad) adopted the “economic employer” concept, for assignments within an international group. The Dutch group company will be considered as the employer for treaty purposes if:
• the Dutch company has the authority to instruct the assignee; and
• the Dutch company bears the risk and expense of the work carried out by the assignee and the associated employment costs are recharged to the Dutch company in a specific manner per individual.
As the employment costs in most cases are recharged to the Dutch group company (as group companies must operate on an arm’s-length basis), the income from employment attributable to work performed in the Netherlands will be subject to Dutch personal income tax under the “economic employer” approach, irrespective of the duration of the assignment. The foreign employer is the withholding agent for Dutch wage tax purposes, and the Dutch group company can be held liable in cases of non-compliance. As a consequence, the employer is faced with an additional administrative burden.