A new tax treaty was signed between Belgium and the Netherlands. This new treaty is now published and will go through the normal ratification process. The treaty includes a number of important changes for all taxpayers with cross border activities between Belgium and the Netherlands.
According to the press release of the Minister of Finance, this new treaty with the Netherlands aims to bring more clarity, fairness and legal certainty.
This new tax treaty will replace the existing treaty, and will incorporate a number of important changes. For example, the new treaty incorporates all the new principles of the Multilateral Convention. More details are provided below.
Some of the main amendments of the new treaty are the following:
- The new treaty provides for an exemption of withholding tax on dividends when the beneficial owner is a company, resident in the other State, which holds directly at least 10% of the capital of the distributing company during a 365 day-period (instead of a withholding tax of maximum 15% as provided for in the current treaty) .
- The new treaty provides for a tax exemption on interest paid by resident of one contracting state to a resident of the other state (instead of a withholding tax of maximum 10% as provided for in the current treaty)
- The treaty is in line with the minimum standards of the OECD’s BEPS action plan; the treaty aims to avoid the double taxation but also explicitly takes aims to mitigate any opportunity of double non-taxation;
- In the new treaty, the “permanent establishment” concept has been extended by the introduction of two provisions aligned on article 12 and 14 of the MLI:
- the “personal” permanent establishment (broadening of the definition of the dependant agent and restriction of the definition of the independent agent)
- the anti-abuse measure related to the splitting-up of contracts in order to avoid reaching the 12-month period for building sites, construction projects, installation projects ;
- Upon request of Belgium, the double non-taxation will be explicitly avoided, which means that if an income is not taxed in one of the States, the other State will retain the right to tax this income (see art. 19, §3 and the protocol). This change is a reflection of the more recent developments in the international tax system, where not only avoidance of double taxation, but also avoidance of non-taxation is a key topic;
- The provision related to the directors’ remuneration distinguishes the remunerations related to the activities carried out as a “director” (e.g, board member) from the remunerations related to the other activities, which will be taxed in the same way as employee remunerations
- The new treaty also provides for a general anti-abuse provision under which a benefit of this agreement will be refused if obtaining that benefit was one of the main purposes of any arrangement or transaction
- Artists and athletes will be subject to the rules of employee remuneration or business profit allocation (and will no longer be subject to a specific provision)
- Home-based cross-border workers: although this issue has been extensively discussed in the context of negotiations, Belgium and the Netherlands have not yet reached an agreement. Therefore, they have developed a joint statement of intent to continue intensive discussions on this subject in the coming months
Note that, as mentioned in the press release, regarding the negotiations and the modernization of the treaties with our neighboring countries, besides the treaties with France and the Netherlands, significant agreements have been reached with Luxembourg and the discussions with Germany on a renewed treaty are in their final stages.
Should you have any questions, please don’t hesitate to reach out to your regular PwC contact or to Pieter Deré.