After years of negotiations, the new tax treaty between the Netherlands and Belgium was signed on 21 June 2023 by State Secretary Van Rij, Belgian Finance Minister Van Peteghem and Flemish Finance Minister Van Diependaele. On 23 June, the text of the new treaty was made available from the Belgian side. This new treaty replaces the current 2001 treaty. The new tax treaty is important to prevent double taxation, combat abuse and it resolves some ongoing bottlenecks under the current treaty, including for teachers, professors and athletes and artists.

After publication, the treaty will have to be ratified in both countries. In the Netherlands, this will require the approval of the House of Representatives and Senate (tacit or explicit). For this, the Netherlands and Belgium will also prepare a joint explanatory memorandum on the treaty. The new tax treaty is not likely to enter into force until 1 January 2025 at the earliest.

The new treaty contains several simplifications for doing business and working across borders. Briefly, the directors’ article has been revamped, the professors’ article and the athletes’ and artists’ article have been dropped and the pensions article has not been changed. These changes will be briefly touched upon below.

Bottlenecks removed for teachers, professors and for athletes and artists

Both the professors’ article and the athletes’ and artists’ article have been removed in the new treaty. In principle, under the new treaty, teachers and professors working across borders pay tax in the country where they work. Indeed, under the old treaty, a state of residence tax applied for the first two years (‘temporary work’) of cross-border work performed by these teachers and professors. This led to an undesirable dis-coordination between taxation and social security; during the first two years, a residence state levy applied for tax purposes, while the teacher/professor in question was liable for insurance or contributions in the country of employment under Regulation 883/2004 (lex loci laboris). Particularly in the tariff sphere, this could lead to significant advantages or disadvantages. In view of this problem, ITEM has repeatedly advocated abolishing this professorial provision. The new treaty removes this cross-border bottleneck and creates more equality.  

With regard to sportsmen and artists, administrative burdens will be avoided, as under the new treaty (unlike under the current treaty) they will not be liable to tax in the other country (country of work) in the event of a short-term performance across the border. Under the new treaty, they will also be subject to residence state taxation.

Anti-abuse provisions and taxation of profits

Furthermore, the new tax treaty also contains provisions to tackle tax avoidance through abuse of the treaty. This is because the treaty contains a number of anti-abuse provisions that will require a company established in one country to pay profit tax in the other country where it operates sooner than is currently the case. These provisions come from the international Base Erosion and Profit Shifting (BEPS) project against tax avoidance. There is also a general anti-abuse provision allowing the treaty to be refused if the purpose of an arrangement or transaction is to avoid tax.

The emigrated DGA (director-major shareholder)

The new treaty also contains two adjustments for director-major shareholders with their own BV who have emigrated to Belgium. For instance, under the new treaty, it will be possible for the Netherlands to tax dividends up to 10 years after emigration, even if the BV has moved to Belgium along with them. In addition, the treaty stipulates that under the new treaty, Belgium will not levy tax when the shares are sold or the BV is liquidated if a Dutch tax claim is still outstanding. In such cases, this must be a claim on the increase in value of the director-major shareholder’s shares that arose during the period when this shareholder was a resident of the Netherlands.

Amend driver article: a cut

With regard to the directors’ article, the amendment includes a cut-off made between the activities they perform as statutory directors and other activities. In cross-border cases, this may mean that under the new treaty, these directors will be taxable in two countries (not just in the country where the company is incorporated).

Pensioners across borders: no changes

Although all hopes were pinned on a change in the much-discussed pension article in the old treaty (Art. 18(2)), nothing will change in this complex pension article. In particular, the situation of pensioners residing in Belgium with a Dutch pension has occupied minds in recent years. ITEM has repeatedly called attention to this and advocated for an adjustment of this pension article. The central question here is whether Belgium taxes Dutch pensions ‘sufficiently’ from a Dutch perspective. This is also a point of discussion in Dutch case law in a multitude of court cases. Now that Belgium has amended its national tax law with regard to this point, it remains to be seen to what extent this issue will reemerge. Nevertheless, it is a shortcoming that the complex pension article has not been adjusted in the new treaty.

Working from home frontier workers: no solution yet

One of the other ITEM spearheads concerns the situation of frontier workers working from home. However, the situation of frontier workers working from home is still under discussion between the Netherlands and Belgium. It was decided not to leave the signing of this treaty now until these discussions have been concluded. Such an agreement will then be implemented in the tax treaty via an amending protocol. It is hoped that the Netherlands and Belgium will reach agreement on this in the relatively near future.

In short, the new treaty has removed a number of important bottlenecks to working and doing business across borders. Nevertheless, a number of obstacles (working from home across borders and the pension article) remain the full focus of ITEM’s attention.