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    Netherlands – Decree on Allocation of Severance Payments in an International Context

    GMS Flash Alert 2024-057 | March 14, 2024

    The Dutch Ministry of Finance published a new decree on the allocation of taxing rights in respect of severance payments in an international context on 15 December 2023.1  The decree took effect on 1 January 2024.  An earlier judgment2 by the Dutch Supreme Court (Hoge Raad) was the reason for this new decree.

    The new decree updates the decree of 25 January 2022.3

    WHY THIS MATTERS


    This decree changes the way severance payments may be taxed in an international context.  As per the decree, now, with regard to the allocation of severance payments, a distinction can be made between tax treaties concluded before and after 15 July 2014.

    With the bifurcation of tax treatment under tax treaties signed prior to 15 July 2014, as compared with treaties signed after 15 July 2014, this could make the taxation of severance payments more challenging and more onerous.

    More Details

    Under the old decree, the power to tax a severance payment was allocated on the basis of the total employment history of an employee.  Based on the aforementioned Supreme Court judgment, the Deputy Minister of Finance is of the opinion that with regard to the allocation of severance payments, a distinction can be made between tax treaties concluded before and after 15 July 2014.

    • For tax treaties signed before 15 July 2014, a severance payment will be allocated based on the current calendar year and the four preceding calendar years (the ‘4+ method’).
    • For tax treaties signed after 15 July 2014, allocation will be based on the total employment history of the employee. 

    What If Double Taxation Occurs?


    The 4+ method may lead to (partial) double taxation if the other treaty country allocates on the basis of the entire employment history.  The decree therefore contains a provision that if the application of the 4+ method leads to (partial) double taxation, the severance payment may be allocated on the basis of the entire employment history.  This is subject to the condition that there is no (partial) double non-taxation with respect to the two countries party to the treaty.

    MEIJBURG & CO. INSIGHTS 


    The position taken by the Deputy Minister of Finance has made the division of the power to tax severance payments in an international context more complicated.

    Employers and their globally-mobile employees receiving severance payments that (partially) refer to a Netherlands employment period may wish to discuss, in advance, the tax implications of the severance being paid with their qualified tax professional or a member of the GMS/People Services team with Meijburg & Co. in the Netherlands (see the Contacts section).

    RELATED RESOURCE


    This article is excerpted, with permission, from "New decree on the allocation of severance payments in an international context" (8 February 2024), an online publication of Meijburg & Co., the KPMG International member firm in the Netherlands.  In English, click here.  In Dutch, click here.

    Contacts

    sandy-govers
    Sandy Govers

    Senior Tax Manager

    KPMG in the Netherlands

    ruben-froger
    Ruben Froger

    Partner and Head of the People Services practice

    KPMG Meijburg & Co.

    Additional Resources

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    Footnotes

    1  Besluit van 15 december 2023, nr. 2023-24998 (Decree of 15 December 2023, no. 2023-24998)

    2  ECLI:NL:HR:2022:1436, 21/00747.

    3  Besluit van 25 januari 2022, nr. 2022-19850 (Decree of 25 January 2022, no. 2022-19850).

    Disclaimer

    * Please note the KPMG International member firm in the United States does not provide immigration or labour law services. However, KPMG Law LLP in Canada can assist clients with U.S. immigration matters.

    The information contained in this newsletter was submitted by the KPMG International member firm in Canada.

    GMS Flash Alert is a Global Mobility Services publication of the KPMG LLP Washington National Tax practice. The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organization. KPMG International Limited is a private English company limited by guarantee and does not provide services to clients. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

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