Netherlands: unilateral changes in exit taxation of annuities and pensions: Tax treaty override?

In the Netherlands, the case law on the exit taxation of annuities and pension claims seems to be a never-ending story. In 2009, the author discussed in a Dutch tax journal the changes in the exit taxation of annuities and pension claims that the Dutch legislature introduced on 16 July 2009 as a very quick reaction to decisions of the Dutch Supreme Court in this context. The new legislation was passed only one week after these decisions! This new legislation is the subject of the decisions discussed in this chapter. In 2012, the author discussed another decision of the Supreme Court in respect of exit taxation on pension claims under the Belgium-Netherlands Income and Capital Tax Treaty (2001).

The research questions of this chapter are:
– Do the 2009 changes in the Dutch national tax law in respect of the exit taxation of annuities and pension claims constitute tax treaty override?
– Should these 2009 changes be considered to constitute tax treaty override?

In 2009, the Dutch legislature changed the national tax law systems in respect of the exit taxation on annuities and pensions. The questions are whether the inclusion of these rules constitutes or should be considered to constitute tax treaty override in respect of tax treaties concluded before 2009. Since a significant number of countries have included an exit taxation clause in various fields in their national laws, the answers to these questions may not only be relevant for the Netherlands, but may have a wider impact. Therefore, the answers provided by the Dutch Supreme Court may, both from an academic and practical point of view, contribute to the learning processes in other states. In this context, in this chapter, the author will discuss a recent ruling of the Dutch Supreme Court: HR, 14 July 2017, no. 17/01256, BNB 2017/186. The most important question in this case was whether the changes in the Dutch domestic tax legislation had to be considered an act of tax treaty override in the context of the France-Netherlands Income and Capital Tax Treaty (1973).

In order to answer the research questions, this contribution adheres to a traditional legal methodology. In the context of interpreting and applying tax treaties, the principle of good faith is a main principle of international taxation. This methodology makes it possible to acquire a more complete understanding of the possible impact of the interpretation and application of tax treaties as done by the Dutch Supreme Court. For the descriptions, analyses and evaluations, the author has used sources of law, including national tax law, (tax) treaties (including the Vienna Convention on the Law of Treaties – VCLT, and the respective OECD Models), global issues (e.g. global principles in redistributive justice), legislative history, technical explanations, case law, statements of practice, public rulings, private rulings and literature.

Firstly, the facts of the case are briefly described. Secondly, the decision of the Dutch Supreme Court is presented. Subsequently, the decision is analysed and evaluated. The author has developed a benchmark to assess the Supreme Court’s decision and to come up with suggestions for improvement if necessary. The author explains that a tax treaty should be interpreted and applied consistently with the principle of good faith (legal certainty). In this context, the author also addresses the impact that the decision may have on the tax treaty negotiation process and tax treaties themselves if a contracting state wants to safeguard better the prevention of tax treaty override. The author closes with the main conclusions.