Belgium and the Netherlands sign new double tax treaty

Belgium and the Netherlands sign new tax treaty
On 21 June 2023, the Finance Ministers of the Netherlands and Belgium (and Flanders) signed a new double tax treaty that will replace the 2021 treaty.

The text of the treaty has not been disclosed yet but press releases in Belgium and the Netherlands indicate that

• Teachers and professors working across borders will in principle pay tax in the country where they work like other workers. Under the current treaty, Belgian teachers working in the Netherlands continued to be liable to tax in Belgium for two years. The new provision creates more equality for teachers and professors and they are more likely to pay tax in the country where they pay social security.

• The treaty eliminates administrative burdens for sportsmen and artists performing across borders. They will pay tax on the income from short-term performance across the border in their country of residence.

• there are some adjustments for Dutch company directors who are major shareholders of their own companies (‘directeurs-groot aandeelhouders’) who have emigrated to Belgium. For example, the new treaty will allow the Netherlands to tax dividends up to ten years after emigration, even if the company has emigrated with the director to Belgium. In addition, the new treaty stipulates that Belgium will not levy tax when the shares are sold or when the company is liquidated if a Dutch tax claim is still outstanding. This must then be a claim on the capital gain on the value of the shares of the director-major shareholder that accrued while he was a resident of the Netherlands.

• The treaty has been brought into line with the minimum standards of the OECD's BEPS Action Plan. It contains provisions to tackle tax avoidance through abuse of the treaty. For instance, contrary to the current treaty, the new treaty contains provisions to allow for taxation of profits in the country where activities are carried. The Base Erosion and Profit Shifting (BEPS) project against tax avoidance where internationally operating companies use specific tax planning that leads to tax avoidance. The new treaty emphasises that the agreement aims to avoid double taxation without offering opportunities for double non-taxation or reduced taxation.

• At the request of the Belgian negotiators, the treaty will explicitly exclude double non-taxation. Thus, if a type of income is exempted from tax in the Netherlands, Belgium will still be able to tax this income, and vice versa.

The new treaty does not address cross-border workers who work from home, but the tax authorities of both countries are still in negotiation on this topic.

The new tax treaty must be ratified by the Parliaments of both countries (and the regional parliaments in Belgium) before it will enter into force. The treaty is not expected to enter into force before 2025. The Netherlands and Belgium are also drafting a joint explanatory note to the treaty.