Employees working cross-border Germany and the Netherlands: where to pay tax on termination payments

January 3, 2017

In our January 2016 newsletter we informed you about the new double tax treaty between the Netherlands and Germany (the “2016 Tax Treaty”).  In that article we highlighted an area of uncertainty with regards to the allocation of taxation rights for termination payments where employees work cross-border, which the 2016 Tax Treaty failed to resolve.  Now amended legislation in both countries has resolved the position, providing clarity on this issue.

In this article we summarise:

 

Treatment under previous Netherlands-Germany double tax treaty (effective through 2015) (the “Previous Tax Treaty”)

The Previous Tax Treaty did not make specific provision for termination payments in the situation where employees worked cross-border.  The result: a difference of approach between the two countries:

Since this difference of interpretation could lead to double taxation or no taxation at all, the Dutch and German authorities agreed in 2007 to allocate taxation rights (i.e. between the country(ies) where the employee worked, during the full term of his/her employment) (the “2007 Agreement”).  However, the legitimacy of the 2007 Agreement, which in the Netherlands was implemented via a 2007 Directive, was successfully challenged in both countries.

 

2016 Tax Treaty

Unfortunately, the countries missed the chance to include a legal agreement on the allocation of taxation rights for termination payments in the new treaty.  Therefore, national rules have to be applied in both countries to resolve the issue of termination payments where employees work cross-border:

This solves the problems arising from the different interpretation in the two countries.  Through 2016, the problem of double taxation can be solved via mutual agreement.

 

What should you do next?

 

Further information

For further information or to discuss any of the issues raised, please contact Rina Driece on +31 10 224 6 424, Loyens & Loeff, the Netherlands, or Joachim Menz on +49 892422300, Keller-Menz, Germany.

 

 

Disclaimer

Content is for general information purposes only. The information provided is not intended to be comprehensive and it does not constitute or contain legal or other advice. If you require assistance in relation to any issue please seek specific advice relevant to your particular circumstances. In particular, no responsibility shall be accepted by the authors or by Abbiss Cadres LLP for any losses occasioned by reliance on any content appearing on or accessible from this article. For further legal information click here.

To ensure compliance with requirements imposed by the IRS and other taxing authorities, we inform you that any tax advice contained in this article (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties that may be imposed on any taxpayer or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.

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Disclaimer
Content is for general information purposes only. The information provided is not intended to be comprehensive and it does not constitute or contain legal or other advice. If you require assistance in relation to any issue please seek specific advice relevant to your particular circumstances. In particular, no responsibility shall be accepted by the authors or by Abbiss Cadres LLP for any losses occasioned by reliance on any content appearing on or accessible from this newsletter. For further legal information click here.

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