An airline pilot taxed abroad is possible even if the pilot is residing in the Netherlands. For pilots and crew of a ship special rules apply where the income is taxed. This rule even varies per tax treaty.
Main rule taxation employment income
Employment income is taxed in the country where the employment is being executed. In case an employee works in more than one country, the salary is split in proportion to the countries where the job is being done. As a salary split could be fiscal beneficial, the Dutch tax office is very keen to determine whether it is a true salary split. I stress the words ‘could’ in the previous sentence as in our opinion the double taxation relief is not so much a relief as more a burden.
Exception to the rule – 183 day rule
If an employee is physically less than 183 days in another country and he works in that country AND the salary is not paid by an employer in that other country AND the costs of the employee cannot be allocated to a permanent establishment of the employer in that other country, only then the income of the employee is not taxed in that other country.
We are often asked by subcontractors with their company abroad about the 183 day rule in the Netherlands. They perform a job on site and under instructions of the client for which they are paid. In the Netherlands that is referred to as employment. If there is no discussion about what the source of income is, the tax treaty is not applicable. The 183 day rule is in the tax treaty. Therefore often the 183 day rule does not apply.
Exception to the rule – Airline pilot taxed abroad
An airline pilot is separately mentioned in the tax treaty and in the one treaty the pilot is taxed in his home country, in the other treaty he is taxed in the country where the airline company has it main office.
Airline pilot taxed abroad – court case
A Dutch resident tax payer is working as pilot with EasyJet Airline Company Ltd. Until May 2014 he was stationed at the Malpensa Milan airport. He spend 73 days in Italy and on his Italian income Italian income tax was withheld.
In his 2014 Dutch income tax return he claimed to have earned an Italian income that is only taxed in Italy, not in the Netherlands. The Dutch tax office disagreed and taxed the income with Dutch income tax.
The pilot went to court. The court disagreed with the Dutch tax office. Not in Italy the main office is situated of EasyJet but in the United Kingdom. All main decisions are taken in the United Kingdom and the board of directors is situated in the United Kingdom. However, that said, the branch of EasyJet in Malpensa Milan was a so called permanent establishment of EasyJet. In the Italian office there was a staff of in total 31 persons, that instructed 891 employees in Italy.
The accounts of the head office in the United Kingdom showed a separate chapter for the Italian permanent establishment. In this chapter were allocated the salary costs, the Italian office had its own budgets and profit and loss overview.
The court also had to determine whether this chapter of costs is to be allocated to the Italian permanent establishment. The conclusion was yes. That implies that even though the pilot worked less than 183 days in Italy, the costs can be allocated to the Italian permanent establishment, hence the 183 day rule does not apply. Therefore the main rule applies and that is that the employment income is subject to tax in the country where the employer is situated. In this case Italy.
Orange Tax Service
We are focused on international clients. The result is that in the initial conversation we have, we touch immediately the topic of the fiscal residence. Often it is thought of as being a choice. It is not a choice. Then there are exceptions to the rules we are familiar with, among which the airline pilot. If you feel a similar topic applies to you and you would like to be informed, please contact us.