There is currently much discussion about the tax agreement between the Netherlands and Germany. The subject of the discussion is the question of whether the salary of Dutch civil servants who live in Germany should be taxed in Germany if they work from home, for example. This applies not only to civil servants, but also to persons treated as such, e.g. employees of some universities.
The tax treaty between the Netherlands and Germany contains a special article (Article 18) on the taxation of salaries and pensions of civil servants. The main rule is that salaries and pensions are only taxed in the country in which they are paid (“cash state principle”). However, this article contains two exceptions. The first exception has to do with the nationality of the civil servant: If the civil servant (or equivalent) has German nationality, the work he or she performs in the home office is taxed in Germany. The second exception has to do with why the civil servant lives in Germany. The salary is not taxed in the Netherlands if the civil servant does not live in Germany solely because of his work.
This second exception, the reason why the civil servant lives in Germany, is now crucial to the discussion. The Dutch tax authorities explain that this exception applies, for example, to local employees of a foreign embassy. They can then pay tax in their country of residence and do not have to file a Dutch tax return. The German tax authorities take a different view, citing the literal wording of the agreement. If a civil servant voluntarily lives in Germany, the part of the salary that the civil servant works in the home office is subject to German income tax.
The Zeeland-West Brabant Court already ruled on this in July 2022 and confirmed the German view. The Dutch tax authorities therefore had to grant an exemption to avoid double taxation for the part of the salary that the civil servant earns in Germany.
As the Dutch tax authorities have not (yet) changed their opinion, the salary will be fully taxed in the Netherlands. It is also possible that the Dutch and German ministries will agree that the Dutch view will be adopted by Germany. Until then, these civil servants will remain in limbo and will be (partially) double taxed on their income.
We will report as soon as we know more about this.