Expert Group opinion on tax equalization

An employee is resident in the Netherlands in 2019 and works for a Dutch employer. He has a "tax equalization" agreement with his Dutch employer. In 2019 he received a subsequent salary payment from his former employer in France covering a period during which he lived and worked in France. The right to levy tax on this subsequent payment is fully allocated to France under the tax treaty between the Netherlands and France. An exemption to prevent double taxation is claimed for this later payment in the income tax/nation insurance contributions (IB/PVV) return for 2019. The income which the employee receives from his Dutch employer is fully allocated to the Netherlands for taxation purposes. The IB/PVV 2019 assessment is issued in 2021 granting the requested exemption. Due to the tax progression provision the assessment results in an amount of tax payable in the Netherlands. As a result the net income of the employee is less than was agreed with the Dutch employer. Based on the specific "tax equalization" agreement, the Dutch employer will refund this tax to the employee as a nett amount in 2021. The Expert Group notes here that such an agreement which sets a nett income, does not occur often in practice. The Expert Group considers that the correction should be made in the year that it is received, i.e. 2021. 

In the above opinion, we assume that the Dutch and French employers are not affiliated or at least that the reimbursement by the Dutch employer in 2021 is made only further to the employment contract and its tax equalization agreement with the Dutch employer, and therefore does not derive from a French tax equalization agreement and that the costs are not passed on to the French employer. In a group setting, for example, where there are successive secondments or a later payment from an already completed posting, the compensation for the higher Dutch tax would, as a rule, stem from the French tax equalization agreement which, in our view, would change the outcome in this case.