The Netherlands – All Days of Stay Count for 183-Day Rule

The Netherlands – All Days of Stay Count for 183-Day

This report covers a recent decision by the Supreme Court of the Netherlands concerning the word “stay” in terms of the 183-day rule.

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The Netherlands’ Supreme Court (“Hoge Raad”) adheres to the “days of physical presence” method in the OECD Model Convention.1 

WHY THIS MATTERS

The decision by the Hoge Raad clears up what the word “stay” in the Netherlands’ 183-day rule covers.  In the case it reviewed, the Court considered if the word “stay” was limited to working days or if all the days of the stay have to be taken into account.  The Court’s decision was that all days (regardless of whether for business or personal reasons) count.  This determines the taxing rights of the Dutch authorities.

In order to prevent unexpected tax consequences, employees on assignment to the Netherlands and their global mobility managers should bear this in mind.

Background

For the purposes of allocating the right to tax salary from employment, a 183-day rule has been included in tax treaties. If a resident of another state is employed by a foreign employer to work in the Netherlands and there is no economic employer or permanent establishment of the foreign employer in the Netherlands, then the Netherlands only has the power to tax if the employee spends at least 183 days in the Netherlands during a 12-month period (or calendar year, depending on the text of the treaty).

Proceedings before the Hoge Raad

A resident of Belgium worked less than 183 days in the Netherlands.  However, he also stayed in the Netherlands for personal reasons.  In total, he stayed more than 183 days in the Netherlands.  The question on which the Hoge Raad had to rule was how “stay,” as it appears in the 183-day rule, should be interpreted.  Is this limited to working days or do all the days of the stay have to be taken into account?

The Court’s decision was that all days count.  

Easy-to-Apply Benchmark

The Commentary to the OECD Model Convention is important for the interpretation of tax treaties.  It contains guidelines for the interpretation of tax treaties.  With regard to the interpretation of “stay” for the purposes of the 183-day rule, the Hoge Raad refers to the “days of physical presence” method.  This means that each day (or part thereof) that an employee stays in the state of employment must be taken into account.  It is irrelevant whether the employee’s stay is for business or personal reasons. 

For this reason the salary of the Belgian employee who worked less than 183 days in the Netherlands, but whose stay in the Netherlands amounted to more than 183 days, was subject to Dutch personal income tax (if and to the extent that the activities were performed in the Netherlands).  This benchmark is easy to apply in practice.

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

© 2017 KPMG Meijburg & Co., a Netherlands partnership and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

Flash Alert is an Global Mobility Services publication of KPMG LLPs Washington National Tax practice. The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in 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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