New Contract in the Netherlands & NEW questions

[rawly]

What law/directive due you think allows one to work in another Sovereign State without paying local tax? Quote the EU Directive that pertains to EU tax harmonisation and I'll read it.

This doesn't apply to me specifically as mentioned above the 30/70 arrangement made locally here keeps the Dutch Hector happy, but the part of the tax treaty which I guess would cover you is the same as when any UK based company sends you on a trip to an overseas client. If part of your job is supporting something and you get sent to a Site in Germany one day, then Belgium, then Netherlands, then Denmark at the end of the year you don't then fill in a Tax return for 5 different countries. Well I've had Jobs where I worked across EMEA and never came across this I guess due to the general wording of one of the treaties:

"...people working in the Netherlands will normally be exempt from paying tax on their income earned there if they are physically present in the Netherlands for less than 184 days in a twelve month period or tax year and if they are paid by a non-Dutch employer. "

Sounds sensible to me anyhow!

But it's certainly a complex area and anyone thinking of taking an EU contract should seek professional and legal advise from all the parties involved to establish everyone's liability and fully converse with the local tax authorities before signing anything. This is what all 5 parties in my chain did anyhow.

In a way the guy who started this thread won't get much comfort from reading anything on here as it's not professional & legal advise for his specific circumstance.

But it's nice to swap indivdual examples.

[SueEllen]

There is a difference between IBM and Oracle et al and One-man-contractor-co Ltd, do some reading. Start off with the German Taxman Cometh thread, and the Belgian one for real world examples and search the forum for some guy in Denmark getting stiffed by the SKAT.

Then come back to us.

There is also a thread somewhere about someone in Norway getting screwed.

Though in that case the taxman just helped himself to the final monthly payment.

[SueEllen]

This doesn't apply to me specifically as mentioned above the 30/70 arrangement made locally here keeps the Dutch Hector happy, but the part of the tax treaty which I guess would cover you is the same as when any UK based company sends you on a trip to an overseas client. If part of your job is supporting something and you get sent to a Site in Germany one day, then Belgium, then Netherlands, then Denmark at the end of the year you don't then fill in a Tax return for 5 different countries. Well I've had Jobs where I worked across EMEA and never came across this I guess due to the general wording of one of the treaties:

"...people working in the Netherlands will normally be exempt from paying tax on their income earned there if they are physically present in the Netherlands for less than 184 days in a twelve month period or tax year and if they are paid by a non-Dutch employer. "

Sounds sensible to me anyhow!

But it's certainly a complex area and anyone thinking of taking an EU contract should seek professional and legal advise from all the parties involved to establish everyone's liability and fully converse with the local tax authorities before signing anything. This is what all 5 parties in my chain did anyhow.

In a way the guy who started this thread won't get much comfort from reading anything on here as it's not professional & legal advise for his specific circumstance.

But it's nice to swap indivdual examples.

No it doesn't work like that for one man limited companies in Europe.

There are two economic models used in Europe - the company of record and economic employer.

Most countries use the latter which means they consider the end client as your employer regards of the structure used and the number of companies in between, you, the worker and them, the end client.

The couple of countries* who use the company of record model do allow you to do 182 days in their country but you still need to have other directors who live outside that country. If all the company's management e.g. all the directors are in that country then from day one you need to pay tax as the economic employer model.

They also do check up on you as unlike in the UK other countries have laws allowing government departments to collate data.

Hence you and others ranting about people sticking to their guns doesn't work. I've told people this in person as I've worked in different countries who have followed the different economic models.

Oh to complicate matters even more, some countries like Germany allow you to be a freelancer - the UK equivalent of a sole trader - where you can work with agencies. You just need to ensure you have enough clients in that tax year to be taxed as one. Therefore in those countries it is stupid to have a one man limited company.

* Last time I checked only two countries used that model and each counted the 182 days differently.

[Sue B]

The 183 day rule applies to employees not companies, so if you are going to use your PSC you need to read the business profits section of the DTA first.

"Article 7
Business Profits
(1) Profits of an enterprise of a Contracting State shall be taxable only in that State unless the
enterprise carries on business in the other Contracting State through a permanent establishment
situated therein. If the enterprise carries on business as aforesaid, the profits that are attributable to the permanent establishment in accordance with the provisions of paragraph 2 may be taxed in that other State. "

Then read the Permanent Establishment Rule

"Article 5
Permanent Establishment
(1) For the purposes of this Convention, the term “permanent establishment” means a fixed
place of business through which the business of an enterprise is wholly or partly carried on.
(2) The term “permanent establishment” includes especially:
(a) a place of management;
(b) a branch;
(c) an office;
(d) a factory;
(e) a workshop; and
(f) a mine, an oil or gas well, a quarry or any other place of extraction of natural resources. "

Most Personal Services companies will be deemed to have a permanent establishment under 2a place of management. So the PSC is taxable in The Netherlands.

Then you can read the 183 day rule and see if it applies to you as an employee of your PSC (which isn't called the 183 day rule really because whether you are in the Netherlands for 183 day or not there are other tests.)

"ARTICLE 14
Income from Employment
(1) Subject to the provisions of Articles 15, 17 and 18 of this Convention, salaries, wages and
other similar remuneration derived by a resident of a Contracting State in respect of an
employment shall be taxable only in that State unless the employment is exercised in the other
Contracting State. If the employment is so exercised, such remuneration as is derived therefrom
may be taxed in that other State.
(2) Notwithstanding the provisions of paragraph (1) of this Article, remuneration derived by a
resident of a Contracting State in respect of an employment exercised in the other Contracting
State shall be taxable only in the first-mentioned State if:
(a) the recipient is present in the other State for a period or periods not exceeding in the
aggregate 183 days in any twelve month period commencing or ending in the fiscal year
concerned; and
(b) the remuneration is paid by, or on behalf of, an employer who is not a resident of the
other State; and
(c) the remuneration is not borne by a permanent establishment which the employer has in
the other State. "


Under parts 2b and / or 2c you have failed the 183 day rule as an employee because either your PSC has a permanent establishment or the economic employer (the end client) has.

There is of course always a chance that you fall into a grey area. Where there is a potential for the PE rule to not be appropriate and therefore you may be able to apply the 183 day rule, you need to get the opinion of the Dutch Tax Authority. The only authority who can exempt you from paying Dutch Tax is the Dutch Tax Authority.

The Double Taxation Treaties are meant to be considered in their entirety, bads stuff happens when a person picks and chooses the appropriate bits that they think will remove any local tax liability.

They are best considered as a tie break WHEN you become taxable on the same income in two countries, to decide the order of taxation.

None of the above is meant to suggest that you CANNOT use your PSC in Holland. You may use your PSC anywhere you like, as long as you follow the local rules first.

HTH

[Fred Bloggs]

^^^^^ Great post! ^^^^^

[eek]

^^^^^ Great post! ^^^^^

I'm waiting for rawly to once again misunderstand who Sue is and what she does and doesn't know..

[SueEllen]

I'm waiting for rawly to once again misunderstand who Sue is and what she does and doesn't know..

Unfortunately some people even if you show them the sources of information, including a foreign country's government tax department pages which are in English, will still argue with you because it doesn't suit what they want.

Edit - auto correct error

[Sue B]

I'm waiting for rawly to once again misunderstand who Sue is and what she does and doesn't know..

story of my life.........

[BlasterBates]

This doesn't apply to me specifically as mentioned above the 30/70 arrangement made locally here keeps the Dutch Hector happy, but the part of the tax treaty which I guess would cover you is the same as when any UK based company sends you on a trip to an overseas client. If part of your job is supporting something and you get sent to a Site in Germany one day, then Belgium, then Netherlands, then Denmark at the end of the year you don't then fill in a Tax return for 5 different countries. Well I've had Jobs where I worked across EMEA and never came across this I guess due to the general wording of one of the treaties:

"...people working in the Netherlands will normally be exempt from paying tax on their income earned there if they are physically present in the Netherlands for less than 184 days in a twelve month period or tax year and if they are paid by a non-Dutch employer. "

Sounds sensible to me anyhow!

But it's certainly a complex area and anyone thinking of taking an EU contract should seek professional and legal advise from all the parties involved to establish everyone's liability and fully converse with the local tax authorities before signing anything. This is what all 5 parties in my chain did anyhow.

In a way the guy who started this thread won't get much comfort from reading anything on here as it's not professional & legal advise for his specific circumstance.

But it's nice to swap indivdual examples.

The fact that everybody does it, doesn't mean it's legal. In Luxembourg for years everyone was working through umbrellas and transferring part of their income to an offshore location- This was considered legal because everyone did it. Well after about 10 years the Luxembourg tax authorities found out by accident and lo and behold they weren't turning a blind eye after all to encourage IT contractors, and now everyone has tax bills in the hundreds of thousands.

Generally if you are working in a country you should be taxed, and in particular this applies when are booked to a client in the Netherlands. If not you are running a risk, and the "herd" will not protect you, it will also be of no comfort when you are all caught together after an audit.

It is possible that it is legal, but I would assume it isn't, so tax yourself in the Netherlands, that way you know it is legal. When the "nasty letter" arrives you'll feel really bad, and if it isn't taxable the Dutch tax authorities will simply send your tax return back without deducting tax, so you have nothing to lose.

I would arrange a consultation with an independent Dutch accountant not someone recommended by a recruitment company or an Umbrella.