In which country are you tax resident?

This issue usually arises with a request for exemption from withholding payroll tax/wage tax in connection with a private pension and only occasionally after submitting an income tax return.

This is especially the case if you cannot prove in the regular way by means of a recent tax return with a corresponding assessment for the Personal Income Tax (hereinafter: PIT) or by means of a Declaration of Tax Liability in the Country of Residence (the Thai form RO22) that you are a tax resident of Thailand . Then the question is how to prove this. But even if you have one of the aforementioned documents, the inspector can still throw a spanner in the works and declare you as a tax resident of the Netherlands, as will become apparent. Be wary of that.

 In the following I will pay attention to a number of tax-legal aspects associated with this issue. I will also pay attention to case law.

 In most cases, demonstrating that you are a tax resident of Thailand will not encounter too many problems, but if you recognize yourself in one of the court decisions in which the interested party was regarded as a tax resident of the Netherlands, then beware of the possible consequences that may arise from a request for exemption if your request should be rejected.

And do not think that with the stamps in your passport, demonstrating a stay in Thailand for more than 180 days in a tax year (i.e. calendar year), you can just obtain an exemption from withholding payroll tax on your private pension, which I will from time to time until time come across in Thailandblog. Nothing could be further from the truth and can cost you dearly. This kind of misleading messages do not belong in Thailandblog. They damage its reliability (without the editors of Thailand blog can do anything about it).

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In which country are you tax resident?

Several times I have paid attention to requesting an exemption and the procedure to be followed if you do not have a recent tax return with accompanying assessment for the PIT or a recent Declaration of tax liability in the country of residence. That is why I will ignore the procedural side in this contribution. But more than what I have done in the previous times, I will now pay extra attention to the pitfalls that you may encounter on your way, based on jurisprudence.

As already stated, in most cases proving that you are a tax resident of Thailand will not encounter too many problems, but after reading this article you will come to the conclusion that you may not qualify for the aforementioned exemption, therefore refrain from such a request and do not seek out the difficulties. In the event of a rejection, there is a good chance that you will no longer be able to reclaim the wage tax withheld from your private pension by filing a tax return. You have then drawn attention to yourself and are then registered as a tax resident of the Netherlands.

You can, of course, still request a refund of any wrongly withheld national insurance contributions and the Healthcare Insurance Act contribution.

The arrangement regarding tax residence in the Netherlands-Thailand Treaty

The rules regarding residence for tax purposes can be found in Article 4 of the Convention. This article starts with:

"Article 4. Fiscal residence

1 For the purposes of this Convention, the term "resident of one of the States" means any person who, under the laws of that State, is liable to tax therein by reason of his domicile, residence, place of management or any other circumstance of a similar nature. .”

You enjoy income from the Netherlands. In principle, this income is subject to income tax in the Netherlands.

In order to subsequently fall under the scope of the Treaty, you must be able to demonstrate that you are also subject to unlimited taxation in Thailand under the Thai Revenue Code. And that is the case if you have your place of residence or residence there for more than 180 days in a tax year (i.e. calendar year). These more than 180 days do not have to be consecutive.

You can show proof of unlimited tax liability in Thailand in the simplest way with the stamps in your passport. Please provide an explanation, stating arrival and departure dates and your travel destination. These postmarks are not always clear.

With these stamps you have so far only demonstrated that you are subject to unlimited tax liability in Thailand, but not yet in which country you are a tax resident and that is what it is really about. The so-called 'tiebreaker provisions' of Article 4(3) of the Treaty serve to establish the latter.

The tiebreaker provisions

If you are subject to (unlimited) tax in both the Netherlands and Thailand (so you comply with Article 4, paragraph 1, of the Convention), Article 4, paragraph 3, indicates (insofar as relevant here) from which country you are deemed to becomes a resident for tax purposes (and also in this order):
a. of the State where you have a sustainable home at your disposal have;

1. if you have a permanent home available to you in both States, you shall be deemed to be a resident of the State with which your personal and economic relations are closer (centre of vital interests);
   c. if the State in which you have your center of vital interests cannot be determined, or if you do not have a permanent home available to you in either State, you shall be deemed to be a resident of the State where you usually reside.

Explanation of Article 4(3) of the Convention – the simplest situation

You have deregistered from the Netherlands and no longer have a permanent home available to you here. In Thailand you rent a house. In that case, it becomes very easy to prove that you are tax resident of Thailand: you send the rental contract and proof of rent payments (minimum 6 months in the tax year) and payments for the supply of water and energy costs. A 'house book' (Tabiaanbaan) can serve as additional proof. An apartment title deed would of course be the perfect tool.

In principle, this should be sufficient, unless complications arise, which will be discussed later.

The tiebreaker provisions and the pitfalls

After you have demonstrated that as a resident you are also subject to Thai tax law (Art. 4(1) of the Treaty) and you are thus 'admitted' to the further provisions of Article 4, you must complete the tiebreaker provisions in the order set out in Article 4(3) of the Convention to determine your country of residence for tax purposes.

This order is (briefly and insofar as relevant here):

1. Where do you have a sustainable home at your disposal?
2. Where is the center of your vital interests?
3. Where do you usually stay?

If obstacle 1 already provides a definite answer, the rest will no longer be discussed.

Re 1. You stay in Thailand in a luxury hotel with a swimming pool, sauna and everything you could wish for, or you rent a room there, a temporary other fully-fledged living space or you move in with your boyfriend or girlfriend (something that often occurs in my practice). . In the Netherlands you have a spacious canal house in Amsterdam or a six-storey apartment at the back of Rotterdam.

Your tax residence is located in the Netherlands and only the Netherlands levies on your private pension. The stamps in your passport only serve as a souvenir!

The requirement is that the house is actually available to the taxpayer permanently as a home and therefore not incidentally for specific purposes and/or for a short period of time. Supreme Court 3 October 2003 (ECLI:NL:HR:2003:AL6962)

An argument that although you have access to a permanent home in the Netherlands, but that you never stay there (also in view of the stamps in your passport), does not offer salvation: the house continues to qualify as a 'sustainable home'. Your tax residence remains in the Netherlands. Conclusion AG at ECLI:NL:HR:2006:AV1261.

This can only turn out differently if you also have access to a sustainable home in Thailand. In that case we have to dig further. For this, see the following under sub 2.

The fact that you have rented out the house in the Netherlands for a long period of time could offer some solace, so that it could not be directly involved when you return to the Netherlands. Conclusion AG at ECLI:NL:HR:2006:AV1261.

Incidentally, it is absolutely not necessary that the permanent home is also owned by the taxpayer. Homes owned by, for example, children, parents, or housed in a BV, APV or SPF can also be regarded as a permanent home. Be wary of this.

For example, if you have sold your house in the Netherlands to your son living in the Netherlands, you can be almost certain that the inspector will consider you as a tax resident of the Netherlands: you have a permanent home at your disposal here. This does not have to rest on a (business or personal) right. In addition, you also have a personal relationship with the Netherlands, namely in the person of your son.

This happened to a couple who emigrated to Spain with a son living in the Netherlands. (ECLI:NL:HR:2003:AL6962).

The inspector even assumed that the couple would also have access to a permanent home in Spain. The decisive factor, however, was their personal and economic relationship with the Netherlands. The District Court of The Hague, the Court of Appeal of The Hague and ultimately the Supreme Court supported him in this.

Subsequently, the inspector does not have to demonstrate that the ties with the Netherlands are stronger than those with the country of residence. See also: HR January 21, 2011 (ECLI:HR:2011:BP1466).

Re 2. You have a sustainable home at your disposal in both Thailand and the Netherlands. In the Netherlands, your (former) partner and your children live in that house (someone must take care of the garden during your absence). The center of your vital interests is located in the Netherlands. From a treaty perspective, you are a tax resident of the Netherlands. Again, the stamps in your passport don't matter.

If you have emigrated to Thailand with your partner, but one of your children lives with his or her family in your house in the Netherlands, then there may be a permanent home in Thailand and in any case also in the Netherlands. Subsequently, the personal and economic relations with the Netherlands are decisive and you are therefore regarded as a tax resident of the Netherlands.

Re 3. You are unmarried and officially have no children in the Netherlands. The same is happening in Thailand. You do not have access to a permanent home in the Netherlands or in Thailand. Only then will you be deemed to be a resident of the State where you usually reside.

Only then and if you have not already stumbled at the hurdles ad 1 and ad 2, can you demonstrate by means of, among other things, the stamps in your passport where you usually reside and of which State you are tax resident.

The role of the inspector explained in more detail

If you have deregistered in the Netherlands while the inspector is of the opinion that you are still a tax resident of the Netherlands, he will have to prove this, unless the burden of proof, as the most diligent party, rests on you. The inspector must then establish and make plausible facts and circumstances, from which it follows that the tax residence is located in the Netherlands.

To this end, he has an extensive scenario at his disposal with the necessary flow charts and court rulings. In many cases, however, filling in just one page of this scenario will suffice.

For example, if you have not been able to demonstrate that you have a permanent home at your disposal in Thailand (for example, you live with your/a boyfriend or girlfriend), while that is the case in the Netherlands, the inspector will soon be done with you: he marks you as a tax resident of the Netherlands, with all the consequences that entails. There is a risk in keeping your house in the Netherlands, and yet this occurs under the guise of: “You never know …………………”.

The role of the inspector may have ended if you are actually involved in taxation in Thailand as an unlimited taxable person on the basis of your place of residence. In that case, tax residency in Thailand is assumed in principle (ECLI:NL:HR:2006:AR5759), unless the inspector demonstrates that:

• the opinion of the Thai tax authorities is based on incorrect or incomplete data or
• the levy cannot reasonably be based on any rule of Thai law.

Closing comments

There are quite a few critical comments to be made about some of the cited judgments of the Supreme Court. For example, the question is how the position of the Supreme Court, which does not need to be demonstrated that the bond with the Netherlands is stronger than with the country of residence, relates to the treaty provision that, if you have a permanent home in both States for your available, you shall be deemed to be a resident for tax purposes of the State with which your personal and economic relations are closer. The latter requires me to at least apply a graduation. But, be that as it may, we have hitherto been dealing with this legal conception.

Lammert de Haan, tax specialist (specialized in international tax law and social insurance).

Only for questions regarding your personal and therefore confidential situation and where you are used to writing under your real name, you can contact me via: [email protected]. For the rest, only comment on Thailandblog!