In a recent ruling, the Court of Appeal in Den Bosch outlines ruling It’s very interesting to see how the assessment is carried out to determine in which country income is taxed. In this case, this results in dual tax residence, but fortunately does not ultimately lead to double taxation.
Place of residence
The Court begins its examination with Dutch legislation. The taxpayer is a Dutch national and owns a home in the Netherlands. He is registered in the Netherlands in the Personal Records Database at the address of that home. He holds five bank accounts in the Netherlands and drives a car with Dutch number plates, for which motor vehicle tax is paid in the Netherlands. A large proportion of his family and friends live in the region where his own home is situated. He works on board a ship flying the Dutch flag.
In view of all these circumstances, the Court concludes that this taxpayer’s tax residence is in the Netherlands. This is not affected by the fact that he has a Romanian wife who lives in her own home in Romania.
This conclusion by the Court means that there is a domestic tax liability. Total worldwide income is then subject to income tax in the Netherlands.
Tax treaty
However, the Court also finds that, under Romanian law, the taxpayer is also a tax resident of Romania. As a result, his worldwide income will also be taxed in Romania. Fortunately, the Netherlands and Romania have concluded a tax treaty designed to prevent double taxation.
The tax treaty with Romania stipulates that a person who is a resident of both states is deemed to be resident in the country where he has a permanent home at his disposal. However, the taxpayer has a home in both the Netherlands and Romania. In that case, it must be determined with which country his personal and economic ties are closest.
Given that the applicant is employed on a ship, he does not work in either country. The Court does not consider the fact that he attends a number of courses in the Netherlands for work purposes to be sufficient to establish that his economic ties with the Netherlands are stronger than those with Romania. No allegations were made, nor was any evidence presented during the proceedings, regarding other personal ties, such as membership of associations or other local activities.
The Court ultimately concludes that the ties with Romania are the strongest. Of particular significance in this regard is the fact that the logbook shows that the taxpayer spends 5 to 6 months a year on board ships. In view of this circumstance, the Court does not consider it plausible that he would be significantly involved in clubs and other local activities. Data on the use of his debit cards shows that he clearly spends more days in Romania than in the Netherlands.
Highly factual
In practice, it often proves quite difficult to determine where the tax residence of expats and other (labour) migrants is situated. The specific factual circumstances are decisive in this regard, but those facts are by no means always crystal clear. This is evident from the facts and circumstances taken into account by the Court in the above case.
The end result is that, apart from the taxpayer’s own home situated in the Netherlands, the taxpayer’s income is not taxed in the Netherlands. The tax treaty with Romania assigns the right to tax property to the country in which the property is situated. It is not known whether income tax is actually levied in Romania on the other income.