The Dutch Ministry of Finance recently that Dutch taxation of cross border termination payments will be in line with the OECD commentary. Previously taxation was such payments were based on decisions from the Dutch Supreme Court.
The main rules in the OECD commentary regarding the taxation rights of such payments can be summarized as follows:
- the termination payment is taxed in the country where the employee worked in the last twelve months;
- if the employee worked in several countries during this period, the payment should be allocated on a pro-rated basis;
- certain payments e.g. non-competition allowance, are subject to taxation in the country of residence;
- other payments e.g. garden leave are taxed in the country where the employee would have been employed during that period.
The OECD commentary will be adapted into Dutch law with retroactive effect as of July 15, 2014 and therefore applies to tax assessments which were not irrevocable on the aforementioned ate.