Double Taxation Agreement Germany Netherlands

Both states provide for credit and exemption methods to avoid double taxation. A retraining clause stipulates that in order to benefit from an exemption method, a resident residing in Germany, using profits from a company under an EP in the Netherlands or dividends received by a Dutch company, must prove that the income in question is «active» income. In addition, a tax clause provides that the exemption method applies in Germany only if income from Dutch sources has been «effectively taxed» in the Netherlands. The new tax treaty replaces the old tax treaty of 1956. The content of the new tax treaty aims to meet international standards applicable to OECD bilateral tax treaties. The aim of the new treaty is to prevent double taxation and double non-taxation by abuse. The fight against contractual abuses between the Netherlands and Germany was a central element for Germany during the negotiations. The main point of the Netherlands was the improvement of the position of the Dutch border worker and the Dutch director/majority shareholder. The Netherlands and Germany are important trading partners in their bilateral relations. The number of shops between the Netherlands and Germany is almost nowhere else in the world. It is increasingly common for Dutch and German companies to operate in the same markets to exploit their growth potential.

Workers in Germany and the Netherlands, particularly in regions along the German-Dutch border, are increasingly mobile in the international labour market and are more likely to work across the border. In situations where money is earned in another country where the worker lives, taxation is threatened. The new Netherlands-Germany tax treaty defines the country that can tax income from the other country or income from the other country. In principle, Germany continues to apply the exemption method to eliminate double taxation. However, the exemption method only applies if Dutch income is actually taxed in the Netherlands («subject to a tax clause»). In addition, dividends received in Germany are tax-exempt only if the beneficiary directly owns at least 10% of the shares of the Dutch company and the dividend is not deducted tax in the Netherlands («correspondence principle»). The aim is to avoid certain hybrid structures in which a tax deduction is obtained in the Netherlands and where income is exempt in Germany. In addition, the exemption method applies to corporate profits and dividends only if the German beneficiary provides proof that the Dutch PE distribution/distribution company derives almost exclusively from the profits of active trade («activity test»).