AG’s opinion on the concept of employer for tax treaty purposes | Deloitte Netherlands


AG’s opinion on the concept of employer for tax treaty purposes

AG Niessen has delivered an opinion in which he addressed the question of whether a group company qualifies as an effective employer for the purposes of the tax treaty between the Netherlands and Germany.

14 April 2022


X lives in the Netherlands and has a managerial position. The holding company of the group (A Inc.) for which he works is established in the United States. X reports to the CEO of this holding company. X is employed by the UK based group company B Ltd., but also works for the German subsidiary C GmbH. B Ltd. charges management fees to C GmbH. The amount of those fees depends on the turnover of C GmbH. Parties dispute whether X is entitled to double tax relief for the work performed in Germany for C GmbH. In this context, the question is whether C GmbH is the (effective) employer of X within the meaning of the Netherlands-Germany tax treaty.

Judgment of the Court of Appeal

The Court of Appeal of ‘s-Hertogenbosch did not uphold X’s argument that the Netherlands, as the country of residence, must follow the interpretation of the concept of ‘employer’ by the source country, Germany. The Court of Appeal ruled that the requirement of an individualised charge of wage costs cannot be regarded as a ‘conditio sine qua non’ for qualification as employer as referred to in the treaty, but only as one of the relevant criteria for doing so. With this, the Court deviated from previous Supreme Court guidelines. However, because X does not make it plausible that he works under the authority of C GmbH, C GmbH does not qualify as X’s employer for the purposes of the Netherlands-Germany tax treaty. Therefore, X was not entitled to double tax relief for the work performed in Germany for C GmbH. X lodged an appeal in cassation against this judgment and accordingly, A-G Niessen recently delivered an opinion.

Supreme Court guideline

On 1 December 2006, the Supreme Court rendered a number of judgments on the interpretation of the concept of ‘employer’ as referred to in the tax treaty. According to these judgments, an employer can be said to exist within the meaning of a treaty, and in accordance with the OECD Model Tax Convention (‘OECD MTC), if:

  1. a relationship of authority exists between the employee and the company in the state of employment; and
  2. the work is performed for the account and risk of that company.

If a legal employer established outside the state of employment pays the wages, an additional requirement is that the legal employer must charge on the wage costs on an individual basis to the company for which the work is performed.

Amendments to the OECD Commentary

In 2010, the OECD Commentary was amended with respect to the criteria that apply to the qualification of an entity as an employer under the tax treaties. In this commentary, the primary condition is that the work forms an ‘integral part of the business’ of the company for which the work is performed. If that is the case, the OECD Commentary lists a number of further supporting criteria for concluding whether a particular entity can effectively be regarded as an employer for the purposes of the treaty.


AG Niessen opined that the commentary on Article 15 OECD MTC of 2010 is relevant when applying the 1959 Netherlands-Germany treaty (dynamic interpretation). He further opined that the interpretation by the source state of the concept of ‘employer’ is decisive in the application of the tax treaty. The AG therefore disagrees with the Court. If Germany considers C GmbH to be X’s employer, the Netherlands would have to follow suit. The Netherlands did make a reservation in the commentary on Article 23A and 23B OECD MTC, in which the State of residence is instructed to follow the source State in the event of a conflict of qualifications. But that reservation was explicitly not made in the commentary on article 15 OECD MTC. If the Netherlands did not grant relief, while source country Germany would levy tax, there would be double taxation. This would be contrary to the purpose of the treaty (principle of effectiveness).

Analysis Deloitte

The judgment is now in the hands of the Supreme Court. We do not rule out that the Supreme Court will rule that the Netherlands may nevertheless give an autonomous interpretation to the concept of ‘employer’ in a tax treaty. This is also in view of earlier case law. If the Supreme Court follows the AG, this will have practical consequences. For employees who live in the Netherlands, but work in different countries, it would have to be assessed how each country of employment interprets the treaty. That interpretation would then be decisive for the answer to the question of whether the Netherlands must provide double tax relief.

Source: Opinion AG 16 March 2022, ECLI:NL:PHR:2022:250

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