On 15 May 2015, the Netherlands ratified the Germany–Netherlands Income Tax Treaty 2012. This new treaty will replace the Germany–Netherlands Income and Capital Tax Treaty of 1959. The Treaty is in line with the OECD Model tax treaty.
The maximum withholding tax rates included in the treaty are:
- 15% on dividends, 10% for Dutch pension funds and 5% if the receiving company owns directly at least 10% of the capital of the company paying the dividend. The 5% rate does not apply if the shareholder is organised as a partnership
- 0% on interest. However, the treaty allows the contracting states to apply their domestic law treatment with regard to income from profit-sharing bonds
- 0% on royalties
Both states provide for the credit and exemption-with-progression methods to avoid double taxation. A switch-over clause provides that, in order to benefit from an exemption method, a German resident deriving business profits from a PE in the Netherlands or dividend income from a Netherlands-based company must demonstrate that the relevant income is 'active' income. Furthermore, a subject-to-tax clause provides that the exemption method in Germany only applies if the income from Dutch sources has been 'effectively taxed' in the Netherlands.