News

The new treaty for the avoidance of double taxation on income between Belgium and the Netherlands, which was signed on 5 June 2001 (see our tax Newsletter n° 10 of October 2001 and our PTX headline of 26 July 2002) will enter into force on 1 January 2003. The law of 11 December 2002, which approves it, has been published in the Official Gazette on Friday 20 December 2002(*).

Appreciation

One of the main amendments is the abolition of the frontier worker system. Frontier workers will no longer be taxed in their country of residence but in the country where the employment is carried out. The Netherlands have included a unilateral compensation rule in the treaty for their residents, in order to prevent “new” Dutch cross-border workers being fiscally disadvantaged compared with residents of the Netherlands who are taxable exclusively in the Netherlands (“permanent” compensation rule), and in order to prevent “existing” Dutch cross-border workers being fiscally disadvantaged by the abolition of the cross-border workers rule of the old treaty of 1970 (temporary compensation rule). “New” Dutch cross-border workers are residents of the Netherlands who become taxable in Belgium because of their work as employees after the new treaty has entered into force. “Existing” Dutch cross-border workers are residents of the Netherlands, who were considered as cross-border workers under the old treaty of 1970.

In practice the “new” Dutch cross-border workers will be compensated for the difference between the Belgian income tax charge, and the Dutch income tax and social security (“premie volksverzekeringen”) charge that they would be liable for if they were taxable in the Netherlands exclusively.

For “existing” Dutch cross-border workers the “temporary” compensation rule excludes Dutch social security charges (“volksverzekeringspremies”) from the Dutch comparison basis, since “existing” Dutch cross-border workers have been liable for Belgian social security from the moment that they started working in Belgium on behalf of their Belgian employer (thus before the “new” treaty entered into force). Because this rule excludes Dutch social security charges from the Dutch comparison basis, the Dutch cross-border worker can claim a compensation for the full Belgian tax charge that exceeds the normal Dutch income tax liability on his/her employment income excluding the “Volksverzekeringspremies”.

Note that for residents of Belgium working in the Netherlands the new treaty does not provide any such compensation rule.

(*)The Official Gazette can be found at: http://www.hrconsulting.be/headline.html?lk=200212201