This follows from the amendment of the earlier Decree from the State Secretary of Finance dated April 23, 2015, no. DGB 2015/584M (Stcrt. 2015, 12171), as published on 5 February 2022. It has been noticed that other tax treaty countries do not apply the 12-month rule of the OECD Commentaries on article 15 of the OECD Model tax convention. As a result, situations of double taxation or double non-taxation have arisen. The State Secretary finds it desirable that the allocation for tax purposes of the severance payment to the working countries is based on:

  • the total period of service the severance payment relates to, or, if not all the data are available
  • a reasonable estimate of the allocation to the working countries for the relevant, total period of service, or, if that is not possible
  • the period of twelve months prior to the end date of the employment.

In the Netherlands, to apply an exemption for wage withholding tax on the severance payment, it is required that during the allocated period, the regular salary was taxable in the working country.

It seems that the State Secretary considers the allocation rule mentioned above to have a fixed order. This creates the possibility of new mismatches with other tax treaty countries. Based on the idea that avoiding double taxation and double non-taxation should be leading, it would be logical to allow choosing the allocation rule fitting the specific situation.

Should you have any questions with respect to the above, please contact your trusted adviser or one of the tax advisers of our Employment & Benefits team