A third supplementary protocol to the Dutch tax treaty was signed on June 4. It allocates the right to tax the profits of permanent establishments exactly on the border and the wages of their employees, frees German invalidity pensions to WW II Dutch forced labourers from the Dutch tax net, and grants a Dutch credit for the German withholding tax on portfolio dividends.

Germany and Holland signed a third supplementary protocol to the double tax treaty on June 4. The protocol requires ratification before it can enter into force and the German government is intending to start the ratification process with a cabinet resolution on August 18. It covers four matters of substance:

  • Companies with their head offices in joint German/Dutch trading estates located on the border; the place of management depends upon where the border passes through the building in which the management is located. In principle, the country of residence is the country of location of the managerial offices. If the border passes through these offices, residence is in the country in which the greater part of that building is located. Free standing buildings with no managerial offices, e.g. an adjacent factory or store, are ignored even if they are on the same trading estate. Employee wages are taxable in the country responsible for the employee's social security. Either country may carry out a tax audit on such premises but the authority responsible should inform its opposite number of its intention to do so. These provisions only apply to joint trading estates specifically defined as such.
  • Branches or other facilities located in such a border trading estate; a company resident in one state (other than on a border trading estate) will not be deemed to have any tax liability in the other by reference to an establishment in a border trading estate even if the facility is entirely within the other country.
  • Invalidity and disability pensions paid by Germany to former Dutch forced labourers conscripted during WW II; these are already tax-free in Holland, but will now be taken out of the calculation of the marginal rates to be applied to other, taxable income. In effect, these pensions will be ignored for Dutch tax purposes altogether from 2003 onwards.
  • German withholding tax deducted from dividends on portfolio investments held by Dutch owners; this is now to be credited against any Dutch tax payable on that income.

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