If the tax treaty holds that a tax credit applies for avoidance of double taxation for a board member fee, in the end, the board member fee will be taxable at the highest applicable tax rate of the two countries involved. For most Dutch tax resident members of the board of a foreign company this will, on balance, lead to a higher PIT on their foreign board member fee. The withdrawal of the approval will have no effect on situations where the tax treaty allows an exemption for avoidance of double taxation.

What strikes us, is that there seems to be no ground for the withdrawal.

The application of the tax credit under the tax treaties is meant to prevent situations where the board member fee is not or only partially taxed. This could, however, result in a higher tax on board member fees, compared to the tax on the salary of employees working abroad which is, in general, exempted from tax.

The approval had been introduced to prevent the higher taxation due to the application of the tax credit. When announcing the withdrawal of the approval in the Memo on the Dutch Tax Treaty Policy 2020 (Notitie Fiscaal Verdragsbeleid 2020), the Dutch State Secretary of Finance mentioned, however, that the goal of it is to prevent foreign board member fees from being taxed at a (on balance) lower tax rate than the Dutch tax on board member fees paid by Dutch resident companies.

From this, we conclude that, apparently, the standard of comparison has changed. In recent years, nothing has changed. Nevertheless, a higher taxation compared with the tax paid by employees working internationally, is no longer an issue for the State Secretary of Finance, although he still mentions this situation in the Memo.

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.