A Life Between Two Worlds
The taxpayer in this case held dual nationality and had a somewhat split life between Kuwait and the Netherlands. After living and working in the Netherlands for over a decade, he moved to Kuwait in 2005, where he remained until 2014. Though he returned to the Netherlands and registered his family there, he continued to work in Kuwait, maintaining professional and personal connections to both countries.
In 2017, the individual worked as a sales representative for a Kuwaiti company, spending considerable time in multiple countries, including Kuwait, Iraq, the United Arab Emirates, and the Netherlands. Given this global footprint, the tax authorities faced the challenge of determining the taxpayer’s residency for tax purposes and whether he was entitled to relief from double taxation on income earned abroad.
Tax Residency
The central question in this case was whether the taxpayer should be considered a resident of the Netherlands in 2017. The court ruled affirmatively, noting that the individual had a strong and sustainable connection with the Netherlands. He maintained a home in the country, lived there with his family, and had worked in the Netherlands in the past. This reinforced his status as a resident taxpayer under Dutch law.
Once his residency was established, the focus shifted to the issue of double taxation on his income earned in Kuwait. Under the tax treaty between the Netherlands and Kuwait, residents of one country are entitled to relief from double taxation on income earned in the other. The court acknowledged that the Netherlands must provide relief for the income earned by the taxpayer during his time working in Kuwait.
Calculating Tax Relief: A Time-Based Approach
A key challenge arose when determining the exact amount of income the taxpayer earned in Kuwait, as he had not provided clear documentation. As a result, the court applied a time-based method to calculate the appropriate tax relief. The number of days the taxpayer spent working in Kuwait—107 days—was used as the basis for determining the tax deduction.
After factoring in weekend days and vacation days in the Netherlands, the court calculated a larger tax deduction than originally granted by the tax authorities. Importantly, the court also clarified that no tax relief was applicable for income earned in other countries beyond Kuwait, as those countries did not have tax rights under Dutch law.
Key Insights for Taxpayers with International Ties
This ruling provides valuable insights for individuals and businesses navigating the complexities of international tax law. It underscores the importance of clearly documenting workdays and income across different countries, particularly when claiming tax relief under international tax treaties. It also highlights how personal and economic connections to a country can influence tax residency, even for individuals who spend substantial time abroad.