Dutch 30% ruling in the Dutch/German tax treaty

The case at hand involves an EU citizen who has relocated to Germany but is employed by a Dutch company. He benefits from the Dutch “30% ruling,” a tax exemption allowing 30% of his gross salary to be tax-free, designed to attract skilled workers to the Netherlands. However, Germany contends that this tax-free portion should be subject to German taxes under its national anti-abuse regulations,
which counteract the intent of the Dutch tax scheme.
The German Federal Fiscal Court (Bundesfinanzhof, BFH) is currently examining this issue to determine how these earnings should be addressed
according to the Dutch-German double tax treaty (DTT) and Germany’s domestic treaty override provisions.
A central question in this case is whether the employee’s income components, including monthly salary, bonuses, and private car use,
should be considered individually or as a single entity. The tax court views the 30% ruling as a tax exemption applied at a flat rate, not as a general allowance for work-related expenses.
Although this exemption resembles an income-related expense deduction, as 30% of the salary remains untaxed, it is not considered a
true reimbursement.
The decision of the German Federal Fiscal Court is eagerly anticipated, as it could have significant implications for the taxation of
cross-border employment and the enforcement of the Netherlands’ Employment Relationships Deregulation Act (DBA-NL), as well as other double tax treaties.