The German Ministry of Finance published a consultation agreement between the competent authorities of Germany and the Netherlands. The agreement concerns the implementation of the Mutual Agreement Procedure (MAP) under the Double Taxation Agreement (DTA) of 2012, as amended by the protocol of 2016.
As stated in the consultation agreement, the competent authorities in Germany and the Netherlands have come to the conclusion that the German-Dutch double taxation agreement of 2012 is no solution to eliminating a potential (economic) double taxation in the following cases:
- When a natural person resident in the Netherlands is involved in a German limited partnership (“KG”). The limited partnership applies to the purposes of German tax as transparent, but for purposes of Dutch tax as non-transparent;
- From a German perspective, it is assumed that the parties involved are permanent establishments in Germany and that the profits of the limited partnership are taxable in Germany;
- From a Dutch perspective, the profits of the limited partnership are not taxable in the Netherlands, since the limited partnership is regarded as a company based in Germany. The participants residing in the Netherlands are taxed on their participation in the limited partnership.
The competent authorities share the view that taxation based on both German as well as from the Dutch perspective corresponds to the agreement. Therefore, individual cases cannot be settled through an agreement procedure, because Article 25 (1) limits the procedure to cases in which taxation does not correspond to the agreement. However, Article 25 paragraph 3 sentence 2 provides the competent authorities the opportunity to jointly discuss double taxation that is not treated in the agreement. In addition, the second sentence of Article I (2) of the Protocol determines that the competent authorities should seek for solutions to hybrid legal entity questions that are not covered by this article.
For these cases, the competent authorities have agreed to specific solutions that correspond to the goal and purpose of the agreement to avoid double taxation.