Dutch Supreme Court changes fiscal allocation travel days

In relation to the calculation regarding the prevention of double taxation on days worked elsewhere, the Dutch Supreme Court recently ruled in the case relating to the business trips undertaken by a Dutch resident goalkeeper coach that a travel day must be attributed half to the country of departure and half to the country of (final) arrival. In this procedure, the question was whether a travel day should be attributed as a full working day to the country of departure or to the country of arrival or to both. This ruling is important because it affects the method of attributing salary for the taxation of an employee who makes business trips and is liable for income and wage tax in multiple countries.

Employees who work and are liable for tax in multiple countries must keep track of how many days they work in which country. Based on this registration, the salary can be correctly attributed to the countries that are allowed to levy tax on it. In the aforementioned case, the trainer (living in the Netherlands) performed work in Saudi Arabia and (also) made business trips to other countries.

 

In its judgment, the Supreme Court ruled that:

• the travel time of a business trip must be regarded as time spent on the performance of the employment, regardless of the factual activities performed during the travel time (this effectively means that the travel day qualifies as a working day);
• this time must be divided ‘equally’ between the countries from which and to which the travel is made; and
• whether any work  - outside the travel time - is performed on the travel day in question, is not to be taken into account.

This means that travel days on which only part of the day is spent in the country of work can no longer be fully attributed to the country of work. In doing so, the Supreme Court explicitly rejects an earlier judgment of the Amsterdam Court of Appeal in which it was ruled that travel days should be fully attributed to that specific country of work.

 

In its judgment, the Supreme Court acknowledges the importance of a simple and practical application of the relevant tax treaty. By dividing travel days equally between the country of departure and the country of arrival, a workable method is created that takes into account the actual circumstances without creating unnecessarily complex situations. Although this ruling concerns a work situation between the Netherlands and Saudi Arabia, it is also relevant in case of other countries with which the Netherlands has a tax treaty. Furthermore, this ruling will be of importance in non-tax treaty situations.

 

Based on the mentioned ruling, more clarity has been created regarding the allocation of (business) travel days from a Dutch fiscal perspective. However, this ruling does not answer all questions. Among others, it is still unclear how to deal with a trip with a ‘mixed’ character (with both a business and private motive) such as the popular “Workcation”. It is also unclear how to deal with a trip that is made early in the morning or late in the evening, where on this travel day (almost) entirely work is done in the country of arrival or in the country of departure. However, it seems clear that a comprehensive and detailed recording and documentation of travel and working days (and applicable times) will become increasingly important in discussions with the Dutch Tax Authorities.

 

If you have any further questions or require additional information in relation to the above, then please do not hesitate to contact our HC department.