Tax office hurt by choice for resident taxpayer status

The Breda Court has again made a ruling in conflict with EU law. This time the ruling concerns a case where a person had the option to choose for Dutch resident taxpayer or non-resident taxpayer status. The own home deduction granted for a German house could not be amended and by reverting to non-resident taxpayer status was only partially deductible for that year.

The Breda Court concluded on April 18, 2011 (No. 10/2769) that a resident of Belgium did not have to opt for resident taxpayer status in order to claim the mortgage interest deduction for their Belgian house. It was sufficient that at least 90% of their income was earned in the Netherlands. (Schumacker case, No. C-279/93).

The recent decision of July 6, 2011 No. 09/1465 concerned a man living in Germany who was employed at a Dutch university hospital until March 31, 2005. After selling his German home he moved to the U.S. for work. Since he had opted for Dutch resident taxpayer status under Article 2.5 of the Income Tax Act 2001 his U.S. earnings were considered worldwide income. The tax authorities applied the recovery ruling from Article 6 Uitv. besl. Income tax 2001 and the negative income claimed from his German home ownership in 2003, 2004 and 2005 was corrected.  

The Breda Court confirmed that the choice for resident taxpayer is always valid for the whole calendar year so the man could not be considered a resident taxpayer until March 31, 2005, and a non-resident taxpayer for the remainder of the year. Also the tax office could not apply the recovery ruling for the negative home ownership income for 2003 and 2004 since the man had earned almost all his income in the Netherlands. For 2005 the taxpayer had two options, either opt for resident taxpayer status based on the grounds of the Gielen case, No. C-440/08 or to opt for non-resident taxpayer status with the own home deduction for the three months in which almost all of his income was earned in the Netherlands. With the choice of resident taxpayer status the negative income from his house ownership for the whole of 2005 is deducted from his U.S. income in the determination of the numerator of the double tax relief calculation.

The court calculated both options and concluded that the man would still opt for non-resident taxpayer status because it led to less tax.

Source:

Income Tax – Editorial FiscaalTotaal – [26-08-2011] – FT110807 – [26-08-2011]