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Netherlands - Egypt Double Tax Agreement.I am Australian,

Resolved Question:

Netherlands - Egypt Double Tax Agreement.

I am Australian, and want to live/reside in the Netherlands, and work abroad in Egypt on a 28 day on, 28 day off roster.

This question relates to where I pay tax under the DTA.

In the DTA, it states;
Article 15. Dependent personal services
1. Subject to the provisions of Articles 16, 18 and 19, salaries, wages and other similar remuneration derived by 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.


Article 22. Elimination of double taxation
1. The Netherlands, when imposing tax on its residents, may include in the basis upon which such taxes are imposed the items of income which, according to the provisions of this Agreement, may be taxed in Egypt.
2. However, where a resident of the Netherlands derives items of income which according to (snip) paragraph 1 of Article 15,(snip) of this Agreement may be taxed in Egypt and are included in the basis referred to in paragraph 1, the Netherlands shall exempt such items of income by allowing a reduction of its tax. This reduction shall be computed in conformity with the provisions of Netherlands law for the avoidance of double taxation. For that purpose the said items of income shall be deemed to be included in the total amount of the items of income which are exempt from Netherlands tax under those provisions.


Does this mean Netherlands uses the EXEMPTION method - whereby I pay tax in Egypt, and not in Netherlands? Or the CREDIT method, where I pay tax in both places, and claim a credit on the higher amount.
Submitted: 1 year ago.
Category: Tax
Expert:  Wendy-Mod replied 1 year ago.
Hello,

I'm Wendy, and I’m a moderator for this topic.

We have been working with our professionals to try to help you with your question. Sometimes it may take a bit of time to find the right fit.

I was checking to see if you had found an answer or if you still needed assistance from one of our professionals.

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Customer: replied 1 year ago.

Thanks. I still require a lawyer who understands Double Tax Agreements (DTA), to 'decipher' my query. I need to understand where I am liable for tax based on the DTA.


 


This is a laeyer/tax related question for Europe/Netherlands. DTA's are a worldwide used bilateral agreement - so anyone versed in international taxation laws should be able to understand this.

Expert:  Wendy-Mod replied 1 year ago.
Thank you, XXXXX XXXXX continue to look for a professional to assist you. Please let me know if I can be of any further assistance while you wait.

Best,
Wendy
Expert:  Fran-mod replied 1 year ago.
Hello again,

We are still working with the professionals to find you the best possible match. I wanted to touch base to see if you still needed a professional’s assistance.

Please let me know if you would like to continue to wait or if you would like to cancel your question at this time. We sincerely XXXXX XXXXX the extended wait time.
Customer: replied 1 year ago.

Yes thanks. Anyone with knowledge on DTA's.

Expert:  Fran-mod replied 1 year ago.

Hello, We do not have a Netherlands tax category here, and have no professionals at all in Egypt. This may just not be the best forum to find an answer to your complicated European tax question. I have alerted our EU lawyers, and if one of them has some experience that he can bring to your situation, he will reply.

 

Please let us know if we can be of further assistance.

Customer: replied 1 year ago.

Thanks. It uses the OECD model, so as long as someone has experience with reading and understanding the intent of what is written in a DTA, it should be fairly generic.

Expert:  Fran-mod replied 1 year ago.
We'll see! Thanks for your patience.
Expert:  Robin D. replied 1 year ago.
Hello,
Sorry you had to wait so long but we have neither an expert for Netherlands or Egypt.
You are correct though about reading the treaties but it is really the Netherland tax application laws that apply. That is what took the extra time and study.
The way to calculate the double tax relief depends on the type of income and the country in which you received this income.
Calculation using the exemption method is based on the relationship between the income on which the Netherlands may not levy taxes under the tax treaty and the total income (from both the Netherlands and abroad). This method usually applies to wages in box 1 and always to immovable property in box 3.
You would use the exemption method.

Even after my study on this situation we have now exhausted any area of either country that i feel comfortable advising about. I would suggest that you use a professional in the Netherlands when you file any tax information, at least for the first year.
Expert:  Barbara replied 1 year ago.

Another expert here - I found your question intriguing, and did some further research for you. The following link provides excellent information: http://download.belastingdienst.nl/itd/verdragen/iatn2008.pdf

 

What may be useful to you is the following:

 

The credit method usually applies under tax treaties for foreign withholding taxes on
income from investments such as dividends, interest and royalties.


The exemption with progression method usually applies to foreign elements of

income for income tax and corporate income tax. In principle, foreign elements of

income are exempt per individual country. The exemption method means that

reductions will be granted for Dutch tax relating to foreign income. For income tax,

the exemption is calculated per box. If the income or profits from foreign sources exceed the total income or total profits (for example because the ‘domestic income' is negative), exemption may not or may not fully be granted in the year in question for the foreign income. In such cases, the total amount of the foreign-source income respectively the ‘excess' of the exemption may be ‘carried forward' and reduction of tax may be granted in subsequent years.

 

This enables the Dutch tax liability to be reduced in the subsequent years.


Foreign losses decrease the Dutch tax liability in the year they are suffered and when calculating the reduction in subsequent years are deducted from the positive foreign income qualifying for exemption.

 

I hope this additional information is helpful to you.

 

Thank you and best regards,

Barb



Customer: replied 1 year ago.
Thanks. I understand the exemption and credit methods, and how to calculate them. Reading most DTA's in effect, most countries use the credit method on income tax. It is actually very obvious in its wording.

However, Netherlands Article 22 is worded entirely different. I know they favoured the exemption method on income taxes, but really wanted someone to look at Article 22 in my original question, and decipher it's intent.

At the end of the day, it's just a paragraph with some heavy legal jargon! Someone learned in the tongue of the law should be able to decipher it's meaning. I imagine that every day, in a court of law, solicitors would have to deal with this kind of wording trickery every day!

Thanks.
Expert:  Barbara replied 1 year ago.

You are so right!

 

Let me do some further research and confer with some colleagues of mine to see what (if anything) I can advise you.

 

Thanks for your patience on this.

 

Best regards,

Barb

Customer: replied 1 year ago.

Thanks. Just as a point of reference - this is the UK-Egypt DTA Article 22;


Elimination of Double Taxation
(1) Subject to the provisions of the law of the United Kingdom regarding
the allowance as a credit against United Kingdom tax of tax payable in a
territory outside the United Kingdom (which shall not affect the general
principle hereof):
(a) Egyptian tax payable under the laws of Egypt and in accordance
with this Convention, on profits, income or chargeable gains from
sources within Egypt (excluding in the case of a dividend, tax payable
in respect of the profits out of which the dividend is paid) shall be
allowed as a credit against any United Kingdom tax computed by
reference to the same profits, income


 


You can see here the intent clearly indicates that if I paid $70k in tax in Egypt, and UK calculated $140k in tax - I would only pay $70k in UK tax ($70k being credited).


 


This is a great read;


http://repub.eur.nl/res/pub/9153/07%20-%20Elimination%20of%20double%20taxation.pdf


 


Page 12 (labelled 182) shows that Netherlands switched to credit for Article 17 (artiste's). Looking at Article 22 then, for the elimination, it doesn't fall under paragraph (2) as I pasted in my original question like income tax did (Article 15). It is actually defined in paragraph (3);


 


3. Further, the Netherlands shall allow a deduction from the Netherlands tax so computed for the items of income which according to (snip) Article 17 (snip) of this Agreement may be taxed in Egypt to the extent that these items are included in the basis referred to in paragraph 1. The
amount of this deduction shall be equal to the tax paid in Egypt on these items of income, but shall not exceed the amount of the reduction which would be allowed if the items of income so included were the sole items of income which are exempt from Netherlands tax under the provisions of Netherlands law for the avoidance of double taxation.


 


This leads me to believe that paragraph (2) originally posted is actually defining the exemption method, and thus - my earnings abroad would not be further taxed in the Netherlands, even if I was tax resident there.


 


I do not believe any other country in the EU/EEA does this. I believe all other countries use the credit method on income tax.


 


So Netherlands is a good place to live! Or the UK if you are non tax resident (based on the automatic offshore tests of the SRT) and non domiciled. Or Ireland.


 

Expert:  Barbara replied 1 year ago.

Hello, again.

 

I thought in my original answer to you I made it clear that your foreign earnings would not be further taxed in the Netherlands even if you were a tax resident there. Apparently, I did not, and for that, I apologize.

 

I read the information contained in the link you sent in your most recent reply prior to sending you my first answer.

 

Just for your own information, a colleague of mine (a tax and law professional) "translated" the legalese contained in your original question into plain language as follows:

 

1. Subject to the provisions of Articles 16, 18 and 19, salaries, wages and other similar remuneration derived by 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.

So far, this means that in THIS situation, the income is taxable by Egypt because of this statement "unless the employment is exercised in the other Contracting State." The Egypt source income (income earned while working in Egypt) is taxed in Egypt.


2. However, where a resident of the Netherlands derives items of income which according to (snip) paragraph 1 of Article 15,(snip) of this Agreement may be taxed in Egypt and are included in the basis referred to in paragraph 1, the Netherlands shall exempt such items of income by allowing a reduction of its tax. This reduction shall be computed in conformity with the provisions of Netherlands law for the avoidance of double taxation. For that purpose the said items of income shall be deemed to be included in the total amount of the items of income which are exempt from Netherlands tax under those provisions.


The wording here "Netherlands shall exempt such items of income by allowing a reduction of its tax. This reduction shall be computed in conformity with the provisions of Netherlands law" and here, "...the said items of income shall be deemed to be included in the total amount of the items of income which are exempt from Netherlands tax..." is indicating that the income should be reported on a Netherlands return and then EITHER a foreign tax credit or a DEDUCTION is allowed.

 

They don't say whether reduction of its tax means a tax credit as a literal reading would imply OR that the tax is reduced by virtue of its simply being excluded (non-reportable) or a deduction from income.

 

Best regards,

Barb



 

 

Barbara, Enrolled Agent
Category: Tax
Satisfied Customers: 1239
Experience: 16+ years of experience in tax preparation; 25+ years of experience as a real estate/corporate paralegal.
Barbara and 3 other Tax Specialists are ready to help you
Customer: replied 1 year ago.

Thanks Barb :)


 


I did read your link prior to submitting my question on JustAnswer, but didn't want to apply this generic case to the Netherlands-Egypt DTA without further review first.


 


Thank you very much for your de-legalised summary. I presume they use 'exemption with progression'.


 


I think Switzerland also use the exemption method.


 


 

Expert:  Barbara replied 1 year ago.

It's been my pleasure to assist you. As I initially told you, your question intrigued me and I just had to research it as well as confer with two of my colleagues. It also seems you are quite savvy yourself, and your presumption is correct.

 

Thank you so much for the excellent rating. It is most appreciated.

 

Please come back to me in the future if you have any questions. Recommendations to family and friends are also most appreciated.

 

Best regards,

Barb

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Barbara
Barbara
Enrolled Agent, Paralegal
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16+ years of experience in tax preparation; 25+ years of experience as a real estate/corporate paralegal.