A recent ruling from the Dutch Court of Appeal sends a clear message to international companies operating in the Netherlands: relying on the formal employment status of cross-border workers is not enough to avoid Dutch wage tax. The court looked past the contractual arrangements to the economic reality, reinforcing the concept of the “material employer” in international tax law.
The Bottom Line
- The 183-Day Rule Isn’t a Silver Bullet: Foreign employees working in the Netherlands for less than 183 days can still be subject to Dutch wage tax if their salary is economically linked to a Dutch Permanent Establishment (PE).
- Substance Over Form: Dutch courts will identify the “material employer”—the entity that directs the work and bears the risk—not just the formal, contractual employer. If this material employer has a Dutch PE, tax obligations arise.
- Increased Due Diligence Required: Companies using international staffing agencies or intra-group secondments for Dutch projects must carefully assess whether the on-site activities create a PE, which in turn triggers Dutch tax liability for the deployed staff.
The Details
The case involved a Portuguese staffing company that provided workers to a Belgian corporation for a large project physically located in the Netherlands. The workers remained on the Portuguese payroll, had Portuguese employment contracts, and spent fewer than 183 days in the Netherlands. The Portuguese firm argued that, under the Netherlands-Portugal tax treaty, this meant the employees’ income should only be taxed in Portugal. This is a common interpretation of the so-called “183-day rule,” which is designed to simplify tax matters for short-term international assignments.
However, the 183-day rule has critical exceptions. The right to tax remains with the employee’s home country only if three conditions are met. While the first two conditions (presence under 183 days and payment by a non-Dutch employer) were met, the dispute centered on the third: the employee’s salary must not be borne by a Permanent Establishment (PE) that “the employer” has in the Netherlands. The entire case hinged on a single question: who is “the employer” in this context? Is it the Portuguese company that signs the paychecks, or the Belgian company’s Dutch project that directs and benefits from the work?
The ‘s-Hertogenbosch Court of Appeal sided firmly with the Dutch Tax Authority, affirming a “substance over form” approach. The court reasoned that for tax treaty purposes, the employer is the entity for whose account and risk the work is performed, and which holds authority over the employee. In this scenario, the Belgian company’s Dutch project—a Permanent Establishment—was the “material employer.” Since the labor costs were functionally attributable to the Dutch PE’s profits, the third condition of the 183-day rule exception was not met. The court’s logic follows a core tax principle: if the wage costs are deductible against a Dutch PE’s profits, the Netherlands should be compensated by having the right to tax the corresponding wages.
Source
Source: Gerechtshof ‘s-Hertogenbosch
