Summary
At last the Dutch Ministry of Finance has issued the Decree with guidelines relating to the Supreme Court decisions of December 2006 relating to the so-called economic employer concept.

Practical Solution
For practical reasons it has been determined that, in general, during intra-company assignments of 60 working days or less in a period of 12 months, the host country company will in general not be regarded as an economic employer. Therefore, the wages of non-resident employees relating to the Dutch working days will not become taxable in the Netherlands. Similarly, Dutch tax residents assigned to work abroad will not be entitled to a relief of double taxation while working for such a period abroad, but will remain fully taxable in the Netherlands.

Regulations relating to withholding requirements
On the basis of a previous approval, the Dutch Group company (being the economic employer) may act as the withholding agent for Dutch wage tax purposes in the absence of a legal employer in the Netherlands. This is important for, amongst others, the application of the 30% facility while working in the Netherlands. It was also announced that new legislation will be proposed to provide a legal basis for this position.

Conclusion
The Decree provides more clarity on the tax treatment of short term intra company assignments. Still, companies need to investigate whether they meet all the conditions set and, furthermore, need to investigate the consequences if the assignment exceeds 60 days. However, still situations of double taxation or double tax exemption may occur. In such cases the Dutch authorities may start discussions with the other tax treaty country.

Background
On December 1, 2006, the Dutch Supreme Court ruled in six different cases that, for Dutch tax treaty interpretation, the so-called economic employer concept applies, rather than the legal employer concept. As a result, more short term employees assigned to and from The Netherlands became taxable in the country where they perform their employment activities, instead of only in their country of residence.

Before these Court decisions, non-resident employees could generally stay in The Netherlands for up to 183 days per year before becoming taxable on their employment income in The Netherlands, provided they did not have a legal employer in The Netherlands. Such individuals are now taxable on employment income relating to their Dutch work days, when they (are deemed to) have an economic employer in The Netherlands.

Similarly, Dutch resident employees were generally not entitled to tax relief in The Netherlands if their presence in a tax treaty country did not exceed 183 days and they were not employed by a legal employer in that other country. Tax relief is now available if they are deemed to have an economic employer in the tax treaty country for employment income relating to working days in that country.

A side effect of the economic interpretation of the term employer is the increase of the administrative burden of employers and employees, since even very short term assignment (in theory also for assignments of 1 day) could lead to taxation in the host country.

In view of the adverse consequences, the Ministry of Finance has issued this Decree providing guidelines and examples to determine when an employer can be regarded as the economic employer from a Dutch perspective. Furthermore, the 60 days period as mentioned before was introduced as a practical solution to remove the administrative burden for short term assignments.

Specific attention needs to be paid in situations where individuals are sent to work for a permanent establishment. In addition, the 60-days rule will generally not apply in situations where individuals are assigned to work through employment agencies. In such situations, different rules will apply to determine taxation.

Next steps
It is envisaged that the Dutch tax authorities will audit international companies on the tax treatment of short term assignments on a larger scale. Companies (will) need to adjust their internal procedures in order to be in compliance with the various requirements in the Netherlands.

We can also assist individuals to understand their specific situation before and after this Decree.

If required we can discuss the specific situation up front with the Dutch tax authorities.

About Taxpat
Taxpat was established in 2001 and is specialised in expatriate tax issues.

Taxpat helps employers (from small international firms to large listed companies) to navigate through the complicated rules and regulations regarding (new) employees working in the Netherlands. Working in close cooperation with your company, we select the most efficient solutions to overcome these challenges and achieve tax compliance for your company and expatriates.

On the basis of our specific knowledge and extensive experience, we assist companies in checking and enhancing internal HR and Tax procedures (such as the Tax Control Framework) relating to cross-border employees.

Contactpersons: Lita Mannoe, Brian James, Eric Jansen at
T: +31 20 675 0050 (Amsterdam office) • T: +31 70 338 0600 (The Hague office)
info@taxpat.com • www.taxpat.com

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