European Nations Forge Tax Agreements: Belgium-Netherlands Treaty, France-Switzerland Agreement, and Belgian Government’s Appeal Over FATCA Data Transfer

Posted in Belgium, France, Market trends, News, Switzerland, Taxation, the Netherlands, USA

The Netherlands; Belgium

Belgium and Netherlands Sign Tax Treaty

In a landmark event held in Brussels on June 21, 2023, Belgium and the Netherlands officially signed a comprehensive income tax treaty. This agreement, once ratified and operational, will replace the existing Belgium-Netherlands Income and Capital Tax Treaty from 2001, as amended by the 2009 protocol. The primary objective of the new treaty is to eliminate double taxation, counteract abuse, and tackle ongoing challenges under the current framework, with a particular focus on professionals such as teachers, professors, athletes, and artists.

Resolving Long-standing Issues

One of the key achievements of the new treaty is the resolution of various issues faced by teachers, professors, athletes, and artists who engage in cross-border work. Under the revised agreement, teachers and professors working across borders will generally be subject to taxation in the country where they perform their services. This promotes fairness by ensuring that they pay taxes and contribute to social security in the same country. Consequently, they will be treated equally to other employees, a significant improvement compared to the current treaty. For athletes and artists, the new treaty streamlines administrative procedures by exempting them from taxation in the host country during short-term performances across borders. Instead, they will be liable to pay taxes on their relevant income in their country of residence.

Combating Tax Abuse and Profit Taxation

The new tax treaty incorporates robust provisions to combat tax avoidance through treaty abuse. It allows the country where economic activities are conducted to levy corporate income tax earlier than under the existing treaty. These provisions align with the international BEPS project, which aims to tackle base erosion and profit shifting to counteract tax avoidance.

Emigrated Directors and Shareholders

Notably, the treaty introduces two important amendments concerning directors and majority shareholders who have relocated from the Netherlands to Belgium with their private limited company (BV). Under the new provisions, the Netherlands can impose taxes on dividends for up to 10 years after emigration, even if the BV has moved to Belgium. Additionally, the treaty specifies that Belgium will not impose taxes on the sale of shares or liquidation of the BV if there is an outstanding Dutch tax claim related to the increase in share value during the period when the shareholder resided in the Netherlands.

Next Steps

Discussions are still ongoing between the Netherlands and Belgium regarding the taxation of cross-border workers who are currently working remotely from home. However, both countries have decided to proceed with the signing of the treaty now, rather than awaiting the conclusion of these discussions.

Before the treaty can take effect, it must receive approval from the respective parliaments in both countries. Furthermore, the Netherlands and Belgium will jointly provide a detailed explanation of the treaty. In the Netherlands, the treaty will undergo the standard process of seeking advice from the Council of State before being presented to the Parliament.

The new tax treaty between Belgium and the Netherlands marks a significant milestone in strengthening bilateral relations and establishing a fair and transparent taxation framework between the two countries. Further updates on this development will be provided as they unfold.

France; Switzerland

France and Switzerland Sign Additional Agreement Under Tax Treaty

In a significant development, France and Switzerland came together on June 27, 2023, to sign an additional agreement to enhance the existing France-Switzerland Income and Capital Tax Treaty from 1966. This supplementary agreement, endorsed in Paris, introduces fresh and permanent taxation regulations specifically addressing income derived from remote working arrangements.

The additional agreement offers increased flexibility for cross-border remote work, with a specific focus on individuals who commute across borders.

It allows for up to 40% of the annual working time to be conducted from home. This agreement builds upon the solution devised in late 2022 to tackle the growing trend of remote work.

Furthermore, the supplementary agreement ensures alignment between the amended France-Switzerland Income and Capital Tax Treaty (1966) and the recommendations put forth by the OECD/G20 initiative aimed at combating Base Erosion and Profit Shifting (BEPS).

Before the agreement can come into effect, it must receive approval from the respective legislative bodies in both countries. In the meantime, France and Switzerland have agreed to provisionally apply the additional agreement until December 31, 2024, based on the temporary memorandum of understanding established on December 22, 2022 (refer to France and Switzerland Agree on Permanent Tax Regime for Teleworking, published on December 23, 2022).

Belgium; United States

Government Appeals Ruling Prohibiting DPA From Transferring Data on ‘Accidental Americans’ to United States under FATCA

In a press release on June 21, 2023, the government revealed that it has lodged an appeal against the decision made by the Data Protection Authority (DPA) on May 24, 2023, which prohibited the transfer of data to the United States under the Belgium-United States FATCA Model 1A Agreement (2014) for individuals categorized as accidental Americans. As the appeal is underway, the government has also requested the suspension of the aforementioned decision.

For more information regarding the DPA’s ruling, please refer to the article titled “DPA Prohibits Transfer of Data on ‘Accidental Americans’ to US Under FATCA” published on May 25, 2023.

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