Dutch Court Grants Mortgage Interest Relief, China Joins Apostille Convention, and Italian Chamber Approves Tax Treaty with Switzerland – Market Trends

Posted in Belgium, China, Italy, Market trends, News, Switzerland, Taxation, the Netherlands

The Netherlands; Belgium

Dutch District Court Rules Belgian Resident Entitled to Mortgage Interest Relief Under Domestic Law, Schumacker Doctrine

The District Court of Zeeland-West-Brabant(Rechtbank Zeeland-West-Brabant) has recently delivered its verdict in Case No. BRE-21_4922, ruling that a Belgian resident who earns less than 90% of their income in the Netherlands is eligible to deduct mortgage interest from their Dutch taxable income.

Here are the key details of the decision:

(1) Facts: Mr. X, a Belgian tax resident, together with his partner, owned a residence in Belgium. They obtained a mortgage for the house, and in 2015, the interest paid amounted to EUR 8,790, of which EUR 5,000 was deductible according to Dutch rules. Mr. X worked in the Netherlands for a Dutch employer, earning EUR 120,000, while his partner had no employment income. Additionally, they received EUR 37,546 in capital income, taxable only in Belgium.

Their total income for 2015 was EUR 157,546 (EUR 120,000 + EUR 37,547).

(2) Issue: The main question was whether Mr. X was entitled to deduct the mortgage interest.

(3) Decision: The Court examined Mr. X’s situation from the perspective of domestic law and the EU law principles established in the Schumacker doctrine.

Domestic Law

Under article 7.8 of the Individual Income Tax Act 2001, a “qualifying non-resident taxpayer” who is a resident of the EEA, Switzerland, or the BES Islands, and whose worldwide income is taxed for 90% or more in the Netherlands, may be subject to taxation as a resident on their Netherlands-source income. Consequently, they can deduct mortgage interest on their primary residence from their taxable income.

Since only 63% of Mr. X’s income (EUR 120,000/EUR 157,546) was taxable in the Netherlands, the 90% threshold was not met. Consequently, Mr. X was not eligible for mortgage interest relief under domestic law.

EU Law/Schumacker Doctrine

In accordance with the Schumacker case law of the Court of Justice of the European Union (ECJ), including case C-283/15 (X), the Court emphasized that the “substantially all income” requirement is not decisive. In other words, the work state may have an obligation to provide relief even if less income is earned there. The crucial aspect is whether the taxpayer has “enough” income in the residence state to utilize the relief.

In the present case, the key issue was whether Mr. X had “enough” income in Belgium and how “enough” should be determined (under Dutch or Belgian rules) and which type of income should be considered (all income or only employment income).

Citing the Wallentin case (C-169/03), the Court held that the rules of the residence state, Belgium, should determine whether Mr. X had “enough” income, and there was no justification for considering only employment income.

The Belgian income tax return included the following:

  • EUR 58,409.69 in income, which incorporated the net Dutch employment income not subject to taxation in Belgium and not considered for determining Mr. X’s entitlement to relief in Belgium.
  • EUR 1,300 in taxable Belgian capital income. Almost all the Belgian capital income was subject to a final withholding tax (bevrijdende voorheffing) and was not included in the Belgian income tax return. Therefore, it could not be taken into account when calculating the available income for relief purposes.

Consequently, according to the Schumacker doctrine, the Court concluded that the taxable income for Mr. X and his partner in Belgium for the year 2015 amounted to EUR 1,300. The remaining income was either not subject to taxation in Belgium or could not be considered in determining whether “enough income” was present.

As a result, since Mr. X (and his partner) earned over 99% of their income in the Netherlands, they were eligible to be taxed as qualifying non-resident taxpayers. Therefore, they were entitled to deduct the mortgage interest from their taxable income.

Note: In the Schumacker case (Case C-279/93), the European Court of Justice (ECJ) established that when a non-resident earns a substantial portion of their income in the Member State where they are employed, that state, rather than the residence state, must grant the same tax advantages to the non-resident as it provides to its residents under those circumstances.


China joins the Apostille Convention

China’s accession to the Apostille Convention, which will take effect on November 7, 2023, marks its inclusion among 122 other nations. Also referred to as the Hague Convention, the Apostille Convention eliminates the need for foreign documents to undergo legalization or authentication when presented in another country. The Convention was established to simplify the acceptance of official documents across different nations.

This development signifies that documents originating from China, such as degree certificates from Chinese universities or birth certificates, will be recognized by other member countries of the Hague Convention, provided they are apostilled.

These documents will then be accepted as public records by the other countries within the Convention.

As a result, Chinese nationals seeking visas in other member countries of the Hague Convention are likely to benefit from a more expedited and streamlined process when gathering the necessary documents. Certain documents can be apostilled electronically, further enhancing the efficiency of the procedure.

Italy; Switzerland

Italian Chamber of Deputies Approves Agreement on Taxation of Frontier Workers and Protocol and Exchange of Letters Under Tax Treaty with Switzerland

The Italian Chamber of Deputies has given its approval to a proposed legislation that ratifies the Italy-Switzerland Tax Agreement (Frontier Workers) (2020), along with its final protocol and exchange of letters. These agreements were initially signed on 23 December 2020, as part of the Italy-Switzerland Income and Capital Tax Treaty (1976), with subsequent amendments made in 1978 and 2015. 

Upon coming into force, this new agreement will replace the existing 1974 agreement on the taxation of frontier workers between Italy and Switzerland.

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