Tax wise a director is relevant information with respect to the tax treaty. But in order to claim the tax treaty for being a director, you need to be a director.
Tax wise a director
The tax treaties the Netherlands has with many countries around the world determine where aspects of the income and assets of a person is taxed. The tax treaties nearly all have the same order of articles and around article 16 or 17 you find the directors article.
This article basically states that a tax resident of the Netherlands in his capacity of being the appointed director of a company based in another states is taxed in that other state. However, if the appointed director executed (a part) of his task in the Netherlands, this (part of) the income is taxed in the Netherlands.
Basically it states that the appointed director needs to show where he has done his job and then pro rata his income is allocated as such.
The thing with company structures is, that all is very formal. Certain formalities needs to be in place to achieve something. The following director had not followed formalities, for a reason.
Tax wise a director or not – court case
A ultimate shareholder, but not a direct shareholder, of a Luxemburg company and Dutch tax resident acted as if he was the director of that company. His name was director of Legal & Compliance, mind you. Being the director of legal & Compliance makes he could not be appointed Chief Executive Officer/director in the register of companies. That would be a conflict of interest. You cannot check yourself to see if you are in line with regulations.
The director of Legal & Compliance who was basically busy checking what he has done himself, but this could not be reported in the official registrars, did act like he was the director of the company. This act he continued in the Dutch income tax return where he claimed the directors article in the tax treaty with Luxemburg. A double tax relief was claimed in the Netherlands for income taxed in Luxemburg, working as appointed director of a Luxemburg company.
The Dutch tax office disagreed and adjusted the double taxation relief to a much lower amount. The acting director argued and went to court. The court simply asked him to proof he is the director. A director is officially registered in every country, so that should not be a problem. However, due to the conflict of interest, such registration was no longer or has never been in place. As this director was officially no director, the official directors article in the tax treaty was also not applicable. Hence no double taxation relief as this director initiated.
The director went to the higher court, but the higher court agreed with this initial court. This is also logic as the issue is a pure fact driven issue. The fact has not changed, hence the higher court cannot but rule as the lower court has done already.
Tax is exciting
Tax is exciting, formalities are not. But without formalities you often cannot claim the benefits or tax credits that come with these formalities. So please check if you are correctly registered with the Dutch Chamber of Commerce and while you check, check at the same site if your annual reports have been published. As director, you are responsible for this obligation. But only if you are officially registered as director that is.