The Dutch Tax Authority frequently conducts investigations into a taxpayer’s domicile. On 17 December 2018, after a request under the Freedom of Information Act (in Dutch: Wet Openbaarheid Bestuur (WOB)), the Dutch Ministry of Finance provided information on its policy for establishing the domicile for tax purposes. In our experience, the Dutch Tax Authority is quick to assume that – based on Article 4 of the State Taxes Act (in Dutch: Algemene wet inzake rijksbelastingen (AWR)) – a person is a resident of the Netherlands. However, while in some cases a family’s Dutch residence can be decisive in determining that the Netherlands is in fact their country of residence, in other cases a family’s residence abroad is not sufficient for ruling out the Netherlands as their country of residence. It is striking that according to the Tax Authority, only the circumstances concerning the Netherlands are considered relevant and the circumstances relating to other countries play no significant role. In our opinion, the Tax Authority is thus misinterpreting Article 4 of the State Taxes Act.
Residence according to Article 4 of the State Taxes Act
Whether a person is a Dutch resident is determined by the circumstances, according to Article 4 of the State Taxes Act. If it is established that a person is a resident in the Netherlands and this person also resides in another country with which a tax treaty is in force, a tie-breaker rule is applied to determine which country is the prevailing country of residence from a tax point of view. However, this is only done when someone is actually residing in two countries. But firstly, it must be determined whether a person is in fact a Dutch resident on the basis of Article 4 of the State Taxes Act.
Based on established case law from the Dutch Supreme Court, an assessment must be made of whether there are permanent ties of a personal nature with the Netherlands. For that purpose, all eligible circumstances of the case should be taken into account. The Supreme Court considered that permanent ties do not have to be stronger than the ties existing with any other country. Therefore, to establish Dutch residency it is not necessary that a person’s social life centres on the Netherlands. Neither can specific significance be given to certain kinds of circumstances, for instance to the social or economic ties that a person has with a certain country.
Determination of residence according to the Tax Authority
As is disclosed in the Tax Authority’s policy, the following facts indicate that there is a permanent relationship with the Netherlands:
- a permanent home that is at the taxpayer’s disposal; the actual power of disposal is what matters;
- the family’s place of residence;
- the taxpayer’s place of residence;
- any social ties;
- any professional and/or business ties;
- any financial interests;
- the spending pattern;
- intention as far as is indicated by evidence;
- registration in the Dutch municipal personal records database;
Although the law does not set a ranking order, the permanent home and the family’s place of residence is given substantial weight. Also, it is noted that the material reality is decisive.
Foreign evidence and circumstances
In a published presentation by the Counter-Evasive Practices Coordinating Group (Coördinatiegroep Constructiebestrijding (CCB)) it was stated that foreign circumstances do not play a role and that the only important factor is what ties the person in question to the Netherlands.
However, we consider that the foreign circumstances do indeed play a role when weighing up the circumstances showing whether permanent ties with the Netherlands exist, as this follows from the judgment of the Dutch Supreme Court dated 12 April 2013. The Central Appeals Tribunal (in Dutch: Centrale Raad van Beroep) weighted up the circumstances in the Netherlands and Morocco. The Tribunal decided that the permanent ties of a personal nature with the Netherlands that arose from the circumstances could not alter the fact that the interested party had been living with his family in Morocco for longer periods for several years.
The Supreme Court considered that the Central Appeals Tribunal had rightfully taken into account the Moroccan facts and circumstances but even so, had determined that the interested party’s ties with the Netherlands were sufficiently strong to assume that he was also living in the Netherlands. In using the word rightfully the Supreme Court considered that circumstances regarding other countries are also significant in determining whether permanent ties of a personal nature exist with the Netherlands.
To determine whether someone has permanent ties to the Netherlands of a personal nature, it is also important to consider what ties this person has with any other country. If this person has a dwelling at his permanent disposal in another country where social activities take place and work is carried out, this could be an important clue to establishing that permanent Dutch ties of a personal nature do not exist. After all, the permanency of the ties is important and that consists of more than just possessing the Dutch nationality and a family residing in the Netherlands. If this were to be the case, no one would be able to leave the Netherlands from a tax point of view.
Finally, we think that the conclusion of Advocate General Mr Overgaauw shows that all circumstances should be weighed up against each other as he comes to the conclusion that the combination of circumstances is decisive. See also for instance the judgment of the Court of Appeal in Arnhem in which circumstances regarding a stay in Canada were taken into consideration and the judgment of the Court of Appeal in Leeuwarden in which the circumstances regarding Belgium were taken into account.
In conclusion, it is of great importance in a dispute about residence that all relevant facts and circumstances are brought forward. The first step is to determine if – based on Article 4 of the State Taxes Act – someone is a Dutch resident. In that respect foreign circumstances can also play an important part and it would be good if the Tax Authority would come to realise this and take all facts and circumstances into consideration in assessing a person’s domicile in the Netherlands based on Article 4 of the State Taxes Act.