The Netherlands cannot tax the Dutch retirement pay. Portugal – A man has been living in Portugal since 2008. His income consists, amongst others, of his Dutch wage and Dutch retirement income amounting to € 67,891. According to the Portuguese tax law a kind of balance method applies. The investment may be deducted from the taxable retirement pay. That is why the man declares his retirement pay for the amount of € 10,184, which equals about 15% of the gross retirement pay.

According to the Dutch tax inspector the tax treaty assigns the taxation rights on retirement pay in that case to the Netherlands, because only 15% of the retirement pay is effectively taxed in Portugal. In another, previous procedure, the Court said that it agreed with the inspector. However, in higher appeal the Court of Den Haag has decided that this is not correct. The discussion arises from the explanation of article 18 of the treaty. The main rule according to the Court is that the treaty assigns the taxation authority on the retirement pay to the country of residence (in this case Portugal). However, the source country (the Netherlands) is allowed to tax when the retirement pay in the country of residence is ‘included in the taxation’ for less than 90%. According to the Court the retirement pay is, in line with the Portuguese law, entirely taxable in Portugal. In contrast to what the inspector says, the Court thinks that it is not relevant whether in Portugal almost the entire retirement pay is effectively taxed.

According to the national legislation of Portugal the entire retirement pay is taxable in Portugal. The fact whether tax is effectively levied is not relevant.