Court of Appeal of The Hague ruled that balances held by a resident of the Netherlands in Spanish bank accounts were rightly subject to income tax in the Netherlands.
For a tax consultant, this is a logical outcome of this procedure. In practice, however, we find that taxpayers are still sometimes (wrongly) under the impression that foreign bank accounts do not have to be included in the Dutch income tax return.
Domestic taxpayer
Income tax distinguishes between domestic and foreign taxpayers. Residents of the Netherlands are domestic taxpayers. This means that all their income, wherever in the world it accrues, is subject to income tax in the Netherlands.
Obviously, then, the (income from) bank and savings balances held abroad by a resident of the Netherlands will also be taxed in the Netherlands. This income is determined on a flat-rate basis in the Netherlands, on the understanding that the Supreme Court has recently reaffirmed that tax may not be levied on more income than the return actually earned (see our articles Supreme Court again rejects flat-rate levy box 3 and More rulings on box 3).
Tax treaty
The next question is whether the Netherlands may actually levy the tax arising from its domestic law. For this, the tax treaty with the relevant country must be consulted (if there is no tax treaty for the relevant country, the unilateral regulation must be looked at). Tax treaties (almost) always allocate the right to tax income from bank deposits to the taxpayer's state of residence. So does the tax treaty that the Netherlands has concluded with Spain.The Court therefore has little choice but to rule that the Spanish bank balances were rightly subject to income tax in the Netherlands.
The argument raised by the interested party that the Netherlands may not levy tax because Spain exempts non-residents' assets up to €700,000 from (wealth) tax is rejected by the Court. After all, these regulations do not apply to the Netherlands.
The fines, amounting to 70% of the back tax levied, the court considers “appropriate and necessary”.