This summer, Belgium and the Netherlands concluded a new bilateral tax treaty, which is expected to enter into force on 1 January 2025. With the previous treaty dating from 2001, this update had been a long time coming.
The new tax treaty makes provision for a range of international developments, such as the treatment of "hybrid entities". Hybrid entities are entities that in one jurisdiction are treated as taxable entities in their own right, typically as a corporation, while in the other jurisdiction they are considered transparent for tax purposes. Special measures have been implemented to prevent double non-taxation. Another key element of the new treaty is that "dynamic treaty interpretation" will apply. While this may sound complicated, it simply means that any change in the international context will impact on the interpretation of the treaty. More specifically, it means that whenever the OECD modifies its Commentary to the Model Tax Convention after the conclusion of the new Belgo-Dutch treaty, those modifications will have to be taken into account when interpreting the new treaty.
Amendments affecting corporations
Corporations face some specific changes under the amended treaty. Permanent establishments will be recognised as such more readily, following the introduction of an anti-fragmentation provision, as a result of which the "cutting up" of positions and contracts no longer offers the possibility of avoiding a permanent establishment in the other contracting state. Income earned by silent partners from their profit shares will henceforth be exempt from tax in the state of residence. The provision relating to the adjustment of profits of enterprises in one of the contracting states has also been tightened. The amendment ensures that an upward adjustment of profits in one of the contracting states will not in all cases result in an offsetting downward adjustment of profits in the other contracting state. The withholding tax rates on cross-border payments of interest and dividends have been changed (not across the board but subject to circumstances).
Amendments affecting cross-border work
The new treaty has plenty of changes in store for cross-border workers as well. The remuneration of directors will no longer be fully and exclusively taxable in the contracting state where the corporation is resident, as a consequence of which the power to tax this remuneration will - in some cases - shift to the state of residence. The special schemes for professors, sportspeople and artists have been deleted from the new treaty. The compensatory system for cross-border workers has been amended. Other changes affect the Dutch director/major shareholder residing in Belgium, including the introduction of an "exit tax" on dividends and capital gains.
Amendments affecting private persons
Some of the amendments may be of import to private persons. For example, wealth tax now falls outside the scope of the new treaty. From a Belgian perspective, this means that the Annual Tax on Securities Accounts (ATSA) no longer applies and that Dutch residents can no longer rely on the treaty to escape the ATSA if they hold a securities account in Belgium. Lastly, the Netherlands is no longer under any obligation to grant exemption from tax when a Dutch resident earns income from Belgian sources which under the treaty is taxable by the Belgian authorities but which is not taxed or taxed at low rates; in that case, the Netherlands cannot and will not grant an exemption, but only afford a tax credit allowing any tax levied in Belgium to be deducted from the Dutch tax base. Conversely, Belgium will no longer be required to grant exemption for income from Dutch sources which is not effectively taxed in the Netherlands.
The AKD memorandum will go into extensive detail about all amendments and set out how they may impact you. If you have any questions, we will be glad to discuss the impact of the new treaty on your situation.
Read the amendments here.