Where you have your tax residence is determined by facts and circumstance, not by official registrations. Often we are asked about the facts and circumstances, here an article dedicated to facts and circumstance.
Tax residence travelling trader – court case
A Dutch national was registered with a city hall in the Netherlands. March 2, 2015 he deregistered and stated to have left to Poland. So he stopped being a Dutch tax resident officially.
December 3, 2015 he purchased a company car in Belgium with Belgium license plates. The same day the Dutch tax office issued a BPM assessment with 50% penalty. What is BPM? We, the Dutch, believe car use should be reduced and use a tax tool that purpose. Any vehicle that comes to the Netherlands had to pay in 2015 45% tax on top of the costs of the car manufacturer.
Example, you purchase a BMW new for EUR 50.000, then you need to realize that in that amount is EUR 15.517 BPM tax, so the car actually costs EUR 34.483 and that is including 21% VAT. This cheap a BMW actually is, but most Dutch cannot afford this cheap BMW due to the tax.
In my example the BPM was EUR 15.517 and the tax office put on top of that amount a 50% fine in the court case. To put the severe measure in perspective.
Facts and circumstance tax residence
The Dutch tax office imposed the BPM assessment in the above mentioned court case based on their opinion that the Dutch national never left the Netherlands as a tax resident. So he officially deregistered, for tax purposes the deregistration is not so much relevant, is more an indication. As he drove a Belgium license plated car, he the assumed Dutch tax resident had to pay the BPM on the spot.
The tax office stated that the Dutch national spend most of his time in a caravan on a campsite in the Netherlands, that he travelled often in the Netherlands. That he spend a lot of time with his child who lives with his mother, no longer the wife of the Dutch national, in the Netherlands. That he washed the car often in the neighborhood of the Dutch campsite.
How does the tax office know these facts you might wonder. Well that is what the cameras do you see at the border, and in 2015 also around Ikea, family parks and big cities.
The Dutch national agreed he visited his child, agreed he washed the car in the Netherlands, but disagreed he was a tax resident in the Netherlands. He works and lives in Belgium.
The Dutch court did not held against the Dutch national that he stated to have left for Poland when he deregistered for city hall. Not relevant for the court. The court was convinced that he worked and lived in Belgium and for work travelled to the Netherlands. And he travelled to the Netherlands to see his child, but that was not enough to make him a Dutch tax resident.
In an ultimate attempted by the Dutch tax office to proof their point, the showed pictures of the car navigation system used by the Dutch National. The court concluded that the home address, that is the address you can put in a navigation to easily guide you to your home, was not a Dutch address, but a Belgium address. Hence the court decided the Dutch national was indeed no Dutch tax resident. No BPM and penalty were to be paid for the car.
Tax is exciting
We hoped to have showed you via a court case how detailed the Dutch tax office operates to determine where you are a tax resident. We are often confronted with clients who simply state that they are a tax resident in a cheap taxed country, but we need to inquire where the groceries are normally purchased. Our clients sometimes think that is a silly question, but actually it is not.
The extent to which the Dutch tax office went, to proof their point, car washing, campsite, pictures of navigation. That is scary, some former Easter European dictator’s dream almost. So the lesson learned, ask your tax advisor, before you install your car navigation, what is your home address.