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Article 18 and 19 OECD. from a Dutch perspective Bastiaan Starink LL.M. Budapest, July 5th 2007. Agenda. What is the OECD model tax treaty Intro on art. 18 and 19 Article 19: government pension Article 18: private pension Difficulties Dutch tax treaty policy regarding pensions

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article 18 and 19 oecd

Article 18 and 19 OECD

from a Dutch perspective

Bastiaan Starink LL.M.

Budapest, July 5th 2007

agenda
Agenda
  • What is the OECD model tax treaty
  • Intro on art. 18 and 19
  • Article 19: government pension
  • Article 18: private pension
  • Difficulties
  • Dutch tax treaty policy regarding pensions
  • Should we still want it?
oecd model tax treaty
OECD model tax treaty
  • Organisation for Economic Co-operation and Development
  • 30 members, 10 to be
  • Hungary and The Netherlands are members
  • Model tax treaty: example for bilateral tax treaties
  • Commentary on the tax treaty articles
  • Dynamic interpretation
article 18 and 19
Article 18 and 19
  • Article 18
    • Private pension
    • Residence state taxation
  • Article 19
    • Government pension
    • Source state taxation
  • When does 18 and when does 19 apply?
article 19
Article 19

Article 19 OECD:

2a. Any pension paid by, or out of funds created by, a Contracting State or political subdivision or a local authority thereof to an individual in respect of services rendered to that State or subdivision or authority shall be taxable only in that State.2b. However, such pension shall be taxable only in the other Contracting State if the individual is a resident of, and a national of, that State.3. The provisions of Article (…) 18 shall apply to (…) pensions in respect of services rendered in connection with a business carries on by a Contracting State or a political subdivision or a local authority thereof.

article 19 intro
Article 19 - intro
  • Pension of civil servants
  • Source state taxation
  • History / Reason
  • Increased importance
  • Exemption for government businesses
  • Exemption for residents and nationals
article 19 funding
Article 19 - funding
  • Paid by or out of funds created by?
  • Funded by or premiums paid by the State
  • Pension does not have to be paid by a fund
  • Employed by the State is decisive (BNB 1995/117)
article 19 state
Article 19 - State
  • State / Provinces / Council / City
  • People who work for this government
  • Private legal person versus public legal person
  • What about private legal persons owned or subsidized by the government?
  • National Bank Inc. ? → government(BNB 1980/259 and BNB 1991/312)
  • Except government business
article 18 intro
Article 18 - intro

Article 18 OECD:

Subject to the provisions of paragraph 2 of Article 19, pensions and other similar remuneration paid to a resident of a Contracting State in consideration of past employment shall be taxable only in that State.

article 18 the rest
Article 18: the rest
  • Pensions not being government pensions
  • OECD: taxation at residence State most desirable
  • Because of mobility of pensioners, mostly ‘cold’ countries lose tax income
  • Dutch policy: taxation at residence state no longer the standard
difficulties
Difficulties
  • Privatisation
  • Transfer of capital
  • Voluntary build up of extra pension
  • OECD: easier to follow last employment
  • The Netherlands: split by years of service, not actuarial
  • Raises enormous administrative difficulties
  • Conflict of interest between States
difficulties example
Difficulties - example
  • John worked for he Dutch State between 1970 and 1985. Total entitlements in 1985 are € 20.000. Between 1985 and 2000 John worked for ING. Entitlements are € 35.000. Total entitlement are € 55.000. As of retirement John emigrates to Spain.
  • How much is taxed where?
  • After emigration, € 27.500 is taxed in The Netherlands, € 27.500 in Spain.
dutch tax treaty policy
Dutch tax treaty policy
  • The Netherlands lose tax income rapidly because of immigration to sunny countries
  • As from 2000: new policy
  • New or updated tax treaties: also taxation at source state
  • Belgium, Portugal, Poland
  • South-Africa, Jordan
  • Still government pension – private pension
dutch tax treaty policy1
Dutch tax treaty policy
  • Also taxed at source when:
    • Source state has EET system, and
    • Home state does not tax pension at normal progressive rate for income out of labour, and
    • The annual payment is more then € 25.000 (Belgium)
should we still want it
Should we still want it?
  • NO
  • Based on old-fashioned principles
  • More and more difficulties because of mobility
  • Northern countries want to keep 19, southern want to keep 18
  • Solutions?
  • More research is needed
  • Untill then we’re stuck with it!
slide17
Thank you very much for

your attention

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