Introduction

The new tax treaty between the Netherlands and Germany entered into effect on 1 January 2016. This treaty serves to replace the tax treaty signed in The Hague on 16 June 1959. The new tax treaty and the changes within it were discussed extensively, as evidenced by the very extensive treatment in the Dutch parliament and the media attention devoted to the treaty when it was signed. One aspect of the new treaty in particular attracted a great deal of attention: the new article governing pensions. The change, known as the ‘€15,000 threshold,’ which was implemented in this article as a change from the old treaty, entails a number of financial consequences for retirees residing in Germany and who have accrued pension in the Netherlands. Some of these retirees are retired German frontier workers who worked in the Netherlands at some point in the past.[1] The most significant change in the pension article is a change in the tax liability on pensions in excess of the total amount of €15,000. Under the old tax treaty, a retiree residing in Germany incurred Dutch tax on his or her general old-age pension, and in Germany essentially no taxes on his or her company pension. Under the new treaty, both the general old-age pension and the company pension are taxable in the Netherlands as soon as the total gross amount exceeds €15,000. This is in contrast to the system under the old treaty, in which a retiree in the Netherlands was taxed in Germany on his or her ‘Rente’ (annuity) and taxed in the Netherlands on his or her German company pension. Under the new treaty, both the annuity and the company pension are taxable in Germany as soon as the total gross amount exceeds €15,000.

Method

The research as part of ITEM’s cross-border impact assessment 2016 considered specifically from a Dutch tax law perspective what the impact of the new pension article on post-active German frontier workers will be. The report presents income projections and mathematical examples to attempt to give a clear picture of the financial consequences the change in the pension article will have on this group. The proviso here is that the treaty has only recently come into effect, so for the time being, the actual impact on this group of retirees and the frontier region will be difficult to measure.[2] An additional complication is that under the ‘general transitional scheme’ the old tax treaty from 1959 may still be applied for the year 2016. There is also a transitional scheme on the Dutch side – the ‘special transitional scheme’ – that, under certain conditions, allows taxpayers to have their company pension taxed at a lower rate in the first six calendar years following the year the treaty enters into effect (2016).[3] The income projections used indicate that the new tax treaty will have financial consequences primarily for retirees living in Germany with a Dutch pension in excess of €15,000. The special transitional scheme, which was designed to mitigate this impact on retiree income, is primarily effective for those retirees residing in Germany with a relatively high pension. Another aspect that the report reveals is the interest on the part of the legislator in creating national tax measure in relation to the tax treaty. On this subject, the report discusses the Dutch ‘net pension scheme,’ a scheme that comprises a maximization of the tax-allowable company pension accrual and which, from a treaty-technical perspective, could raise questions about the tax treatment of the scheme.

Future research

As such, ITEM’s analysis of this dossier in the Cross-Border Impact Assessment 2016 can be seen as an initial (very early stage) step towards further, more detailed future research from a Dutch tax perspective. In the future, the treaty could also be ‘placed under the microscope’ from a German perspective. This also requires adequate statistical data to be available on which the effects of the new tax treaty in practice can be analysed and interpreted. Subjects that could be included in the context of future follow-up research include: the fact that the transitional scheme serves a resident of Germany who has accrued pension in the Netherlands can be seen as an indication that the situation under the tax treaty is problematic for that situation, but not for the converse. In the future, of course, it would be advisable to clarify the latter situation as well [4], with the ultimate object of being able to make a comparison between:

• the income situation of the ‘neighbour’ and former colleague of the Dutch retired frontier worker, both under the old and the new tax treaty.

• the income situation of the ‘neighbour’ and former colleague of the German retired frontier worker, both under the old and the new tax treaty.

Further research from an economic perspective into the impact of the new tax treaty on the sustainable economic development of the border region and the business climate.

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[1] This also affects Dutch people who moved to Germany after retirement. Approximately 5,500 retirees are expected to be ‘hit’ by the change to the pension article. See Parliamentary Documents II 2013/14, 33 615, no. 8 (Memorandum in response to further report), p. 6. Unfortunately, concrete numbers about the group of retired frontier workers are not available.

[2] It can be argued that a retired frontier worker’s connection to a specific geographic border area is less strong than the binding of active frontier workers in this area. Of course, after retirement the retired frontier worker is no longer necessarily bound to a border region. However, for this cross-border impact assessment, the cross-border effects result from the active period in which the worker did work in the cross-border situation.

[3] Opting for application of both the general and special transitional schemes can then lead to a maximum of five calendar years of utilization of these special conditions.

[4] By way of illustration, see: Parliamentary Documents II 2013/14, 33 615, no. 5 (Memorandum in response to further report), annex 1.