A protective assessment upon emigration is imposed, but not immediately collected. An unconditional postponement of payment is granted if the emigrant moves to another EU country. This protective assessment includes any pension accrued in the Netherlands. The tax authorities normally only take action and demand payment of a protective assessment if a pension is settled in a non-regular way within ten years. The goal of the protective assessment is: to prevent the emigrant from redeeming the pension. The effect: an earlier levy of tax.
Case law of interest in 2009
The year 2009 was important for case law in the area of protective assessments upon emigration. In February, the Dutch Supreme Court passed a remarkable judgment regarding substantial interest. The protective assessment was abolished, as it was in conflict with international law at the time it was imposed, but the juridical effect remained in tact. Furthermore, only minimal damages were awarded. In June, the Supreme Court rendered a decision that no protective assessments may be imposed upon emigration for pensions and annuities if the bilateral treaty assigns the right to levy tax on both the periodic and redemption payments to the recipient’s country of residence.
Reparations Bill
The legislature responded with a reparations bill. If, based on the treaty, the right to levy tax on pensions is fully assigned to the country of residence, the given tax facility is now reversed, instead of imposing a levy on the value in the open market at the moment of emigration. There is, however, still much to be said against the reparation bill itself, and on what grounds it was implemented. The fact is that it is impossible to sidetrack a previously concluded treaty by amending the national law. It is also not permissible to requalify income in order for another treaty article to apply. Thus, we have clearly not heard the last word on protective assessments.
Conflict with international law
A protective assessment can be in conflict with both EU law and a bilateral treaty. Although the European Court of Justice does not actually involve itself in how the EU Member States mutually regulate the right to levy tax, it is strict in overseeing that the EU treaty freedoms are not violated. In principle, if there is any distinction made, whereby an emigrant is treated less favorably than a resident taxpayer, this constitutes a prohibited discrimination or obstruction. The condition of providing security is not allowed, nor are other conditions placed on deferred payments of the protective assessment. Furthermore, a decline in value after emigration must also be taken into account.
An obstruction to emigration (such as still having to file annual tax returns) can, however, be justified, if:
· it serves a legitimate purpose;
· it is necessary to achieve that purpose; and
· that purpose cannot be realized in another, less strenuous way.
Furthermore, the national court can pass judgment that a national tax regulation is in conflict with the purpose and scope of a bilateral treaty. The court shall do this if a state attempts to claim unilateral taxation by means of national legislation that became effective after the date on which the treaty came into effect. The legislator would then be evading the treaty, and that is in conflict with the principle of good faith with regard to the treaty.
The Hague Court of Appeals, January 26, 2010
Since January 1, 2003, the Dutch-Belgian Treaty has split the right to levy tax between the country of residence and the country of origin. This treaty gives the Netherlands a relatively strong position if someone emigrates to Belgium. It is absolutely clear which country may levy taxes at which moment.
The Hague Court of Appeals has now decided that the Netherlands, just by imposing the protective assessment, is in conflict with the principle of good faith, which must be considered in interpreting and applying the treaty. This is the case when the Netherlands attempts to tax a benefit that, due to the nature of the benefit, Belgium, the country of residence, actually has the right to tax. Pensions fall into this category of benefits. Based on the treaty, the Netherlands in fact also has the right to tax, but only if the payments have begun or are being redeemed. Imposing the protective assessment causes the moment at which tax is levied to be earlier, and that is unlawful, because it erodes the bilateral treaty. In a short and clearly stated decision, a just decision was made regarding a point on which there had been no previous decision. In doing so, the Hague Court of Appeals has made history.
Conclusion
A remarkable decision, against which appeals will certainly be filed. Are we in for “a long, hot summer”? The year 2010 promises to more exciting than 2009, and this is just the beginning!
Contact: Marlies Kastelein