UK airline pilot taxed in the Netherlands. What is the case?
UK airline pilot taxed in the Netherlands
Airline pilots are an employee of the airline. The main rule is that work is taxed in the country where the work is being done. An Airline pilot can easily do work in a dozen countries a day, by simply having a long flight. This is obviously an undesired situation.
You could argue that the pilot has not physically worked more than 183 days in a country, hence the home country tax rate applies. But with large countries and extra territorial areas this could become complex.
Finally you have the desire of the pilot to be taxed in a more tax friendly country. As most pilot feel free as a bird, they are happy to choose a tropical island as their tax residence.
The tax treaties countries have between each other determine what is taxed in which country. A special article is dedicated to the crew on a vessel or airline which is internationally used. The employment income article sub 3 is the dedicated article in tax treaties.
UK airline pilot taxed in the Netherlands – court case
A Dutch resident tax payer pilot was employed during the start of 2019 by a British airline till May of that year. He flew locally inside the united kingdom and international flights. Provided other services than flying, trained crews and was on standby.
In his 2019 income tax return he made a split his income in Dutch taxed income and income that could be allocated to the time he spend in the United Kingdom as non-Dutch taxed income. For the non-Dutch income he claimed a double taxation relief in the Netherlands.
The Dutch tax office disagreed with this tax return and denied the double taxation relief. The pilot argued in court the decision of the tax office not to provide a double taxation relief.
The pilot claimed that the work done on and above UK territory is subject to UK taxation. Furthermore, international flights should be pro rata allocated to either the United Kingdom and the Netherlands.
The court ruled that the tax treaty did not give room for the creative thinking of this pilot. The treaty clearly states that the home country of the pilot is the country that tax all the income of the pilot. The history of this article in the treaty even showed that it was on the request of the United Kingdom to have the resident state tax all the income. The claim of the pilot was denied.
Tax is exciting
We think tax is exciting. Being creative can be existing too. That said, so many before you have been creative already, hence rules and jurisprudence probably counter your creative thought already.
Same applies with this airline pilot. The pilot could have saved himself two years of legal issues with the Dutch tax office. Someone should have explained to the pilot that for him a special article was dedicated in the tax treaty.