Interest on loans taken out by an employee living in Germany for his German home is not deductible as owner-occupied home interest.
The employee, whom the procedure proceedings in which Zeeland-West Brabant District Court recently ruled, buys a house in Germany in 2013 and goes to live there. He continues to work in salaried employment in the Netherlands. On his salary, the employee owes wage and income tax in the Netherlands. The interest on his German own home is deductible in the Netherlands if of the worldwide income received by the employee, 90% or more is taxed in the Netherlands and the employee provides the Dutch Tax Authorities with a income declaration submitted, which was signed by the German tax authorities.
Redemption requirement
The employee had taken out the loans with a German bank. For interest to be deductible in the Netherlands, the loans obviously had to meet the requirements there. These changed with effect from 2013 by adding the repayment requirement. The repayment requirement means that the loan must be repaid on an annuity basis in at least 360 months. Both German loans ran for 35 years and one of them was not repaid. The Court could therefore do little other than conclude that the interest was not deductible as home equity interest.
New fact?
The employee made another attempt to avert disaster by claiming that the new fact necessary for post-clearance recovery was missing. The court also gave short shrift to this argument. In imposing an assessment, the tax authorities are entitled to assume the accuracy of the information in the tax return. It was not unlikely that the information in the returns was correct. Indeed, there could have been an existing owner-occupied housing debt on 31 December 2012, to which the repayment requirement does not apply.
The employee's reliance on the principle of trust also fails. Merely following the tax authority's declaration does not inspire confidence. Nowhere does the case show that the Tax Administration took a considered position.