A trailing tax does not seem to be a quick solution to the politicians' spearhead issue of taxing the emigrating (extremely) rich. Finance Secretary Van Oostenbruggen writes about it in a letter to the Chamber.
Where is your tax residence?
Taxable in the Netherlands is anyone who:
- has his/her tax residence in the Netherlands (domestic tax liability);
- lives outside the Netherlands, but enjoys specific designated income strongly associated with the Netherlands (foreign tax liability).
One step to consider for people who want to escape what is perceived as a high Dutch tax burden is emigrating to a country with a lower tax burden. It is obvious that people with higher income and/or wealth are more likely to choose this step. Probably the best-known examples of such emigrants are high-earning sportsmen, who relatively often move to countries like Monaco.
What is a trailing tax?
A trailing tax is an extended tax liability in the Netherlands for people who emigrate. The country of emigration (the Netherlands) then also levies tax on income and/or capital gains enjoyed/accrued after emigration. The rationale for a trailing tax is that a person has created their income and wealth potential in the country from which they emigrate thanks to the collective facilities (education, care, housing, infrastructure) in that country.
Trailing taxes come in two variants. The first variant levies only when the emigrant maintains some connection with the country of emigration (the Netherlands). The second variant levies without any tie other than nationality (pure trailing tax).
Treaties
An important complication of the introduction of a trailing tax by the Netherlands is that its effect is negated by the tax treaties that the Netherlands has concluded with many countries. Adjusting tax treaties is often a lengthy process, if the treaty partner is at all willing to agree to the desired tax treaty adjustment.
Only towards countries with which the Netherlands has no tax treaty (e.g. Monaco), a trailing tax could be effective. The State Secretary will therefore investigate whether there are reliable figures on how many persons with which tax interest emigrate to a low or no tax country with which the Netherlands has no tax treaty.
Exit tax
The Netherlands currently already has levies on emigration:
- exit charge income tax box 1: for emigrants who cease to enjoy profit from business or result from other activities in the Netherlands;
- exit tax income tax box 2: on the value return of substantial interest;
- exit tax on pensions and annuities.