Income tax based on nationality: not useful or practical

Introduction

VVD MP Idsinga also wants Dutch citizens living abroad to be included in Dutch income tax based on their nationality. It seems from Parliamentary Questions He presented it to Van Rij, Secretary of State for Finance, on 31 May 2023. Because of the questions Volkskrant essay by Robert Keebles. Max Verstappen living in Monaco could cost tax authorities €100 million in coming years, he writes. The article also notes that Verstappen lived in Belgium until moving to Monaco seven years ago, which makes the use of the word “spend” puzzling.

benefit policy

The Netherlands and other countries have two starting points for income tax. First Residence. Residents’ income is taxed wherever the income is earned in the world. The other starting point is enjoying income from sources in the Netherlands, for example, using an employment relationship in the Netherlands or owning immovable property in the Netherlands (the “Principle of origin“). Accordingly, non-residents become “foreign taxpayers”. In both cases, the taxation profit principle. You pay tax because, as a resident or income earner from the Netherlands, you are considered to benefit from arrangements made by the Dutch government.

You pay tax because, as a resident or income earner from the Netherlands, you are considered to benefit from arrangements made by the Dutch government.

Professional athletes may also be subject to foreign taxation. If they live in a country that does not have a tax treaty with the Netherlands – such as Monaco – and they carry out their sporting activities in the Netherlands, they will generally have profits that are included in income tax in the Netherlands. [1]. The law also provides for the imposition of payroll taxes on professional athletes living in non-treaty countries. So the tax authorities are not completely empty-handed when professional athletes go home.

But while Itsinga’s questions stem from a Volkskrant article about Verstappen, the questions appear to be considerably broader in scope. For example, the Member of Parliament asks (Question 9) “or is being considered [..] To apply the minimum income tax in an international context, the Netherlands can impose additional taxes in situations where Dutch people evade by partially residing in countries with very low income tax rates.“[2]. In question 8, the Member of Parliament wants to know “What are the concrete options for combating tax avoidance for high-income Dutch citizens living abroad for tax reasons?“.

Nationality as a starting point

In essence, the Liberal Member of Parliament is asking that the two thresholds for income tax be expanded to one-third, meaning having Dutch citizenship.

The United States is the only Western country in the world that uses the citizenship of its citizens as a basis for taxing income earned anywhere in the world. [3]. This creates huge problems for so-called “accidental Americans,” people who break U.S. rules because they became U.S. citizens — for example, because one of their parents had U.S. citizenship — not once in life — people find out. These concerns include issues related to late filing of US tax returns or reporting of foreign bank accounts, double or triple taxation of wages and other income (country of residence, country of employment and US), or inability to open a bank account. Country of Residence Non-US banks are required to report their US customers’ accounts to US tax authorities under additional tax. Some banks operating in the US prefer that permission Avoid at all costs.

Dutch nationals living abroad, subject to the wrath of the legislator, can simply acquire the nationality of their country of residence and thus be exempted from the additional tax.

If Itsinga’s ideas were transposed into Dutch law, things might not have to move so fast. Art. This is because Article 15, paragraph 1 letter a of the Royal Act on Dutch Nationality states that adults lose Dutch nationality by voluntarily acquiring another nationality. Dutch nationals living abroad, subject to the legislator’s wrath, can simply acquire the nationality of their country of residence and thus be exempt from the additional tax. The legislator will also follow the US example in this regard. Relinquishing US citizenship requires taking an oath, paying $2350, but – most importantly – a “final settlement” with the IRS.[4].

Key lock

The plan emerging from parliamentary questions is significant. If it ever did result in legislation, the intended effect could simply be negated by renouncing Dutch nationality, which would render the project ineffective. The administrative burden this law places on Dutch nationals living and working abroad cannot be overestimated in the context of the American experience.

Footnotes

to quote as

Mark Romine, “Nationality-Based Income Tax: Neither Effective nor Impractical”, My judgeJune 6, 2023.

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Picture

Max Verstappen & Sebastian Vettel, by Emperor.