Tax treaties in the Dutch Supreme Court: fixed base (India), pension lump sum (United Kingdom) and pilots (France)

The judgments

The question

A Dutch resident who works abroad, or who draws a pension from a former foreign employer, is taxed in the Netherlands on worldwide income. Whether the Netherlands must give up part of that claim depends on the allocation rules of the relevant tax treaty, and those rules are often older than the model conventions and commentaries that advisers now treat as standard. The three Supreme Court judgments discussed here each turn on how literally a treaty is to be read, and the Indian and French cases on how far the OECD and UN Model Conventions, in their earlier or later versions, may be used to fill a gap in it.

The cases concern three groups of people the Netherlands deals with constantly: self-employed specialists on short foreign projects (a diver in Indian waters), people who once worked in the United Kingdom and now receive a British pension (a lump sum paid at the start of the pension), and aircrew employed by foreign airlines (a pilot of a British airline stationed in France). For each, the question is not only who may tax, but also what the Netherlands may still do with income that the treaty takes away from it: count it for credits and thresholds, or for national insurance contributions, which the treaties do not cover.

The legal framework

Netherlands–India: Article 14 and the fixed base

The Convention of 30 July 1988 between the Netherlands and India keeps a separate article for independent personal services. Our authentic English text of Article 14(1) reads:

Income derived by a resident of one of the States in respect of professional services or other activities of an independent character shall be taxable only in that State except in the following circumstances, when such income may also be taxed in the other State:

a) if he has a fixed base regularly available to him in the other State for the purpose of performing his activities; in that case, only so much of the income as is attributable to that fixed base may be taxed in that other State; or

b) if his stay in the other State is for a period or periods amounting to or exceeding in the aggregate 183 days in the fiscal year concerned; in that case, only so much of the income as is derived from his activities performed in that other State may be taxed in that other State.

Neither the Convention nor its Protocol defines “fixed base”. The neighbouring definition of a permanent establishment in Article 5(1) (a fixed place of business through which the business of an enterprise is carried on) is supplemented by a list of examples in Article 5(2), including in point (f) “a mine, an oil or gas well, a quarry or any other place of extraction of natural resources”, and by a six-month rule for building, construction, installation or assembly projects in Article 5(3). Under Article 3(1)(c), “India” includes its territorial sea. Where income may be taxed in India under Article 14, the Netherlands gives relief by exemption under Article 23(2); that relief is what the taxpayer was claiming.

Netherlands–United Kingdom: Article 17(3) and Protocol X

The Convention of 26 September 2008 allocates pensions to the state of residence (Article 17(1)), with exceptions. For lump sums Article 17(3) provides:

Notwithstanding the provisions of paragraphs 1 and 2 of this Article, if a lump-sum payment is paid before the date on which the pension commences, it may be taxed in the Contracting State from which it is derived. However, if the lump sum is paid on or around the commencement of a periodic pension, it shall be taxable only in that State.

The first sentence gives the source state a non-exclusive right, for which the Netherlands credits UK tax under Article 21(3). The second sentence, on which the 2024 case turned, makes the source state’s right exclusive. The Protocol then adds, in Article X:

It is understood that where a lump sum is paid to a resident of the Netherlands, the amount of the lump sum will be taken into account when granting personal allowances and benefits under the income-related regulations of the Netherlands in the fiscal year in which the lump sum is received.

The Convention covers taxes on income and capital gains; Article 2(3) lists, for the Netherlands, income tax, wages tax, company tax and dividend tax. Dutch national insurance contributions (premies volksverzekeringen), which are levied together with income tax in one assessment, are not on that list.

Netherlands–France: Article 15(3) and international traffic

The Convention of 16 March 1973 follows the OECD pattern for employment income in Article 15(1) and Article 15(2), but its rule for crews departs from it. In our translation, Article 15(3) reads:

Notwithstanding the preceding provisions of this Article, remuneration derived by a resident of one of the States in respect of an employment exercised aboard a ship or aircraft in international traffic, or aboard a ship used for inland waterways transport, is taxable only in that State.

“That State” is the state of residence. Unlike the Netherlands–India Convention, whose Article 3(1)(h) defines “international traffic” by reference to an enterprise with its place of effective management in one of the States, the general definitions in Article 3(1) of the French Convention contain no definition of the term. Undefined terms take their domestic meaning “unless the context otherwise requires” under Article 3(2); the Netherlands–India Convention has the same rule in Article 3(2).

Interpretation

The Supreme Court referred expressly to Articles 31 and 32 of the Vienna Convention on the Law of Treaties only in the Indian case: the starting point is the text and internal coherence of the treaty, with the model conventions and their commentaries as aids where the treaty was modelled on them. The French judgment does not cite the Vienna Convention; in the UK case the lower courts read “personal allowances” according to its ordinary meaning in its context and in the light of the object and purpose of Protocol X (Court of Appeal, para. 4.7). The question in each case was how much weight those aids could bear.

The diver in Indian waters (HR 15 January 2016)

Facts

The taxpayer lived in the Netherlands. From 15 December 2008 to 13 March 2009, a period of 89 days of which 72 fell in 2009, he worked in India as a self-employed diver, repairing a floating tank storage vessel moored at a fixed location in India’s territorial waters (in the Bay of Bengal, according to the facts as set out in the Advocate General’s opinion, para. 2.1). He lived on board during that period. He worked on contract and on a project basis: no fixed working period was agreed in advance, and he was to work until the project was finished. India did not tax the income (Court of Appeal, para. 2.5).

His 2009 return did not claim relief. The assessment of 23 March 2011 followed the return, on taxable income from work and home of €63,326 with an interest charge of €467. In his objection of 21 April 2011 he asked for exemption relief for the Indian income, which he put at €37,646. The inspector refused on 9 August 2012. The figures were not in dispute.

The District Court and the Court of Appeal

The District Court of Noord-Nederland dismissed the appeal on 25 June 2013 (ECLI:NL:RBNNE:2013:3981). The taxpayer had argued that a fixed base is subject to lighter requirements than a permanent establishment, that 30 days should suffice, by analogy with the 30-day rule in Article 7.4 of the Income Tax Act 2001 and Dutch treaty policy on offshore work, and, in the alternative, that the vessel was a permanent establishment under Article 5(2)(f) as a place of extraction of natural resources, India treating the examples in Article 5(2) as permanent establishments in their own right. The court held that Article 14(1)(a) corresponds in substance to Article 14 of both the 1977 OECD Model and the 1980 UN Model, so that their commentaries are relevant (para. 3.5). The commentary requires a centre of activity of a fixed or permanent character, which excludes incidental, short-lived situations (para. 3.7). Apart from the special rules in Article 5, the court saw no reason to apply a lighter permanence test to a fixed base, although a fixed base need only be available while a permanent establishment must actually be used (para. 3.8). It took as its yardstick the practice described in paragraph 6 of the OECD Commentary on Article 5, under which places of business maintained for less than six months have generally not been treated as permanent establishments (para. 3.9). Eighty-nine days, fixed in advance (the District Court recorded an agreed contract term of 89 days, para. 1.4), was an incidental and short-term situation (para. 3.10). Article 5 did not help, because there was no enterprise (para. 3.11).

The Arnhem-Leeuwarden Court of Appeal upheld that decision on 11 June 2014 (ECLI:NL:GHARL:2014:4701), but by a partly different route. By then it was common ground that there was no permanent establishment (para. 3.1) and that the vessel was a physical centre (para. 4.2). The court read the explanatory note to the Convention (Kamerstukken II 1988/89, 20 913, no. 1) as showing that the OECD Model of 1963, as amended in 1977, was the starting point, with departures to reflect UN insights, among them the 183-day rule in Article 14(1)(b), which could not apply with 72 days in 2009. Article 14(1)(a) itself did not depart from the OECD Model, so the commentaries could be used (para. 4.4). From paragraph 4 of the OECD Commentary on Article 14 it drew a conclusion the District Court had not: “permanent establishment” and “fixed base” are two different concepts which cannot be identified with each other, nor can it simply be assumed that they are comparable with lighter requirements for a fixed base; the fixed base must be interpreted autonomously, taking account of all the circumstances. Indian case law on permanent establishments was therefore irrelevant (para. 4.6), and so were the examples in Article 5(2)(f) (para. 4.7). Applying the test of “a centre of activity of a fixed or permanent character”, the court held that one-off, self-contained repair work on a project basis for 89 days, while living on board, did not mean that the taxpayer had a fixed base regularly available to him in India (para. 4.8).

Grounds of appeal

The taxpayer raised five complaints (summarised by the Advocate General, paras 3.1–3.6): the court had given no definition of “regularly” and inadequate reasons; it wrongly found that he did not have a fixed base regularly available, since the vessel was at his disposal every day for the whole project and the work was tied to the location; it failed to recognise that the fixed base and the permanent establishment overlap, so that the UN commentary on Article 5 (including its acknowledgement that a short-lived place of business may suffice because of the nature of the activity) should guide the interpretation; the parties had meant to follow only the UN Model, and the 183-day rule in point (b) implies that the threshold in point (a) must lie below 183 days; and the Convention, like the UN Model, gives the source state more taxing rights than usual between industrialised countries, as two Indian appellate rulings and India’s 1997 reservation on Article 5(2) of the OECD Model confirmed.

The Advocate General’s opinion

Advocate General Niessen’s opinion of 31 March 2015 (ECLI:NL:PHR:2015:399) collected the OECD and UN texts, Dutch and German case law and a substantial body of literature. He began by noting that it was unclear whether the Court of Appeal had held that the vessel was no fixed base, or that it was a fixed base which was not regularly available, and whether it had treated any single circumstance as decisive (para. 5.3).

On method, he read Article 3(2) as pointing to the context, since Dutch law does not know the term (para. 5.5). The context includes the internal coherence of the Convention and both model conventions with their commentaries; the Convention follows the OECD Model closely but with UN features, so the source principle carries somewhat more weight, though how much could not be said (paras 5.6–5.7). He declined to read the post-2000 OECD Commentary into the Convention. The OECD deleted Article 14 in 2000 on the view that there were no intended differences between a fixed base and a permanent establishment, but the UN Model has kept Article 14, in line with the states that use it; a change in one model cannot carry over into a treaty based on the other against those states’ wishes, so only the OECD commentaries from before the deletion form part of the context (para. 5.9).

On substance, a fixed base must be physically fixed, which was not in dispute (para. 5.10), and must have some permanence: one day will never do, German case law suggests six weeks is too short, and the threshold is generally lower than for a permanent establishment (para. 5.11). The nature of the work matters (para. 5.12). Because renovation going beyond maintenance counts as construction work under the six-month rule of Article 5(3), and because the two concepts are each other’s context, repair and maintenance work only builds a strong enough territorial link after a minimum period (paras 5.13–5.14). His conclusion:

In view of the above, I take the view that repair and maintenance work such as the present, which is known in advance to cover a limited period and extends over a period of significantly less than six months, is not sufficiently durable to be regarded as a fixed base.

He rejected a fixed minimum duration for all cases; the court must decide case by case, with repair and maintenance projects less readily giving rise to a fixed base and six months as a rule sufficient (para. 5.17). He also disagreed with one possible reading of the Court of Appeal: “regularly” available is a relaxation compared with the permanent establishment, not a tightening, so the fact that the vessel was available to the diver only “once” could not be decisive; during the project it was permanently available to him (paras 5.18–5.19). The Article 5(2)(f) argument failed because the diver repaired a storage vessel rather than extracting oil (para. 5.21). He advised dismissal.

The Supreme Court’s reasoning

The Supreme Court (Overgaauw, Bavinck, Van Kalmthout) dismissed the appeal, following the Advocate General’s outcome but not all of his reasoning.

It first set the interpretive frame (para. 2.3.1). Neither the Convention, its Protocol nor the explanatory note explains the phrase “fixed base regularly available”, and Dutch domestic law does not know it. The drafting history shows that the OECD Model of 1963 as amended in 1977 and the UN Model of 1980 served as starting points, with reference to para. 4.10 of the opinion. Under Articles 31 and 32 of the Vienna Convention, interpretation starts from the text and internal coherence of the treaty, and both model conventions and their commentaries are relevant.

It then rejected the taxpayer’s UN-only argument (para. 2.3.2): nothing shows that the parties meant to follow the UN Model exclusively, or to depart from the OECD Model further than their wording, where it differs from the OECD text, and the UN text show.

The core of the judgment is para. 2.3.3. The commentaries on Article 5 of both models require a certain permanence for a permanent establishment, and purely temporary activities are in themselves insufficient; besides the time taken by the activities, it may matter whether they are one-off or recurrent. The court then drew the fixed base into that framework:

Given the similarity in function between the concepts of ‘fixed base’ and ‘permanent establishment’, and having regard also to the framework of interpretation of the Convention set out above, it is appropriate, in answering the question what degree of permanence is required for a fixed base within the meaning of Article 14(1)(a) of the Convention, to follow the commentaries on Article 5 of the OECD Model Convention and the UN Model Convention. There is no good reason to assume that a fixed base can exist only where the activities concerned last at least six months.

Measured against that test, the Court of Appeal’s decision showed no error of law; for the rest it was bound up with factual appreciation, which cannot be reviewed in cassation, and it was adequately reasoned (para. 2.3.4).

Outcome

The appeal was dismissed and no costs were awarded (paras 3–4). The Netherlands kept the right to tax the Indian income in full, although India had not taxed it.

The UK pension lump sum (HR 20 December 2024)

Facts

The taxpayer lived in the Netherlands in 2016 and was employed there. She had earlier worked for an employer in the United Kingdom and built up a pension. From 22 January 2016 she received a monthly pension of £330.58 (€4,323 in 2016) and, on 28 January 2016, a lump sum of £11,900.77 (€15,611) on partial commutation. Neither was taxed in the United Kingdom (para. 2.2).

She filed her 2016 return online on 14 March 2017 and wrote to the inspector the same day. In her view the lump sum was taxable only in the United Kingdom under the second sentence of Article 17(3), because it was paid at or around the commencement of the periodic pension; entering it as treaty-exempt income in the online return still fed it into the calculation, so she had left it out. She asked the inspector to treat the letter as a supplement to the return (para. 2.3). The inspector replied on 21 March 2017 that the lump sum could not raise the income tax rate, but that national insurance contributions and the income-related contribution under the Health Insurance Act (Zvw) were due on it, and that it counted towards thresholds for deductions. The filing software could not produce that result, so he proposed a “practical solution”: file again, declaring the lump sum as an exempt pension of the European Union (para. 2.4). A letter of 7 April 2017 (sent, according to the Court of Appeal, by her partner) reported that the suggested method produced a reduction of the general tax credit (algemene heffingskorting) of €754, which she doubted; there was no reply and no new return (para. 2.5).

Provisional assessments of 3 June 2017 followed the original return; the final assessments took the lump sum into account, giving a lower general tax credit (for both the income tax and the national insurance part) and a higher Zvw contribution base, with tax interest (para. 2.6). On objection the couple asked, under Article 2.17(4) of the Income Tax Act 2001, for their entire box 3 savings and investment base to be allocated to her, raising her box 3 tax from €147 to €1,164; the inspector absorbed this without raising the assessment, because her income from work and home was set €15,611 lower on objection on a point no longer in dispute (para. 2.7).

The District Court and the Court of Appeal

The District Court of Noord-Nederland (5 November 2021) set the general tax credit at €1,359, the amount in the return. It read “personal allowances” in Protocol X, by its ordinary meaning and in the light of its object and purpose, as amounts deductible from taxable income; a general tax credit that is part of the applicable tariff is not one, because the second sentence of Article 17(3) was meant to give the source state exclusive taxation without a progression reservation, and the general tax credit remained part of the tariff even after its income-dependent phase-out was introduced in 2014 (para. 5.5). Because the lump sum was not part of taxable income from work and home, it could not phase out the national insurance part of the credit either, given Article 12 of the Social Insurance (Financing) Act (Wfsv) (para. 6).

The Arnhem-Leeuwarden Court of Appeal (14 February 2023) adopted the District Court’s reasoning on the income tax part (paras 4.8–4.9). It relied on the parliamentary history of the approval act (Kamerstukken II 2009/10, 32 145, no. 6, p. 15), where the government explained that the wording “is slechts belastbaar in” (is taxable only in), instead of the usual “mag worden belast in” (may be taxed in), gives the source state exclusive taxing rights, so that the Netherlands applies no progression reservation, and that Protocol X was agreed so that the lump sum still counts towards entitlement to personal deductions and income-related schemes, giving as examples the threshold for the gift deduction, specific healthcare costs and the healthcare allowance (para. 4.6). The inspector’s point that the English text says “personal allowances”, which may linguistically cover more than deductions, did not mean, in context, that Protocol X extends to the phase-out of the general tax credit, which is part of the tariff structure of the Income Tax Act 2001 (para. 4.9). On the national insurance part, however, the court reversed the District Court: the Convention covers only taxes, not national insurance contributions, so it does not apply; read together, the Wfsv and the Income Tax Act 2001 phase out the national insurance part of the credit without regard to the treaty. On that basis the credit was €779, a figure not in dispute (para. 4.10).

On tax interest the Court of Appeal held that, for the income tax assessment, interest could be charged on the extra box 3 tax resulting from the reallocation, since she could have opted for it much earlier (paras 4.12–4.20). For the Zvw assessment it annulled the interest decision: given the letter of 14 March 2017, sent on the day of filing and well before the filing deadline and expressly asking to be treated as a supplement, the assessment did not depart from the return (para. 4.22). It did not deal with her subsidiary defence that, even if the correction of the credit stood, no interest could be charged on the income tax assessment, because the inspector had failed to issue the correct provisional assessment (as recorded by the Supreme Court, para. 3.2.2). It also set the penalties for late decisions on the two objections at €69 and €23, each with statutory interest from 26 May 2020, rejected her claims for damages, awarded €22.34 in costs and ordered reimbursement of the €548 court fee (operative part).

The Supreme Court on the general tax credit

The Supreme Court (Van Eijsden, Feteris, Boerlage) first confirmed the starting point: the Court of Appeal’s judgment on the income tax part of the general tax credit was rightly not challenged, “since that judgment is correct” (para. 4.1.1). The lump sum, taxable only in the United Kingdom, may therefore not reduce the income tax part of the credit through Protocol X. In a footnote to that paragraph the court cross-referred to its judgment of 19 July 2019, ECLI:NL:HR:2019:1221, para. 2.5, on income whose taxability is governed exclusively by EU law; the Court of Appeal had cited the same judgment for the income tax part.

The taxpayer’s first ground attacked the national insurance part, relying on the second sentence of Article 17(3) (para. 4.1.2). It failed:

The ground fails in so far as it argues that this provision of the Convention means that the lump sum cannot be taken into account, as an element of taxable income from work and home, in calculating the national insurance part of the general tax credit. In calculating the national insurance part of the general tax credit, the lump sum must under Netherlands domestic law be counted as part of the taxpayer’s income from work and home. The Convention does not change this, since it does not concern the levying of national insurance contributions.

Her further argument, that reducing the national insurance part effectively took into account more than the maximum contribution income, also failed (para. 4.1.4). Article 8(3) Wfsv caps the contribution before credits; under Article 9(1) Wfsv the amount due is that capped amount minus the tax credit for national insurance. A smaller credit therefore does not mean that income above the cap is charged.

Tax interest

The second ground succeeded (paras 4.2.1–4.2.4). The Court of Appeal should have ruled on the subsidiary defence, since it rejected her primary position on the national insurance part; that would have been different only if she had expressly and unambiguously withdrawn the defence (para. 4.2.2). The defence had to be upheld for the same reasons as the Court of Appeal’s unchallenged Zvw ruling: the return was filed online on 14 March 2017, the letter of the same date expressly asked to be treated as a supplement and contained the correct information that, together with the return, allowed the inspector to issue a correct provisional assessment, and both were timely. The assessment was therefore imposed in accordance with the return within the meaning of Article 30fc(4) of the General Tax Act (AWR), as it read in 2016, and no tax interest could be charged on it (paras 4.2.3–4.2.4).

The later box 3 reallocation did not change this (para. 4.2.5). The assessment was based entirely on the facts she had provided in the timely return and its timely supplement. The court accepted the consequence openly: no tax interest can be charged on the extra tax arising from a reallocation under Article 2.17(4) of the Income Tax Act 2001 chosen after the assessment, whereas interest would have been possible had the extra tax been collected by an additional assessment under Article 16(2)(b) AWR. That was not enough to permit interest, because there is no statutory basis for it. The third ground, against the interest on the box 3 tax, therefore succeeded as well (para. 4.3).

Outcome

The Supreme Court decided the case itself (para. 4.4). It annulled the decisions of the Court of Appeal, the District Court and the inspector on objection, but only in so far as they concerned the tax interest decision for the 2016 income tax and national insurance assessment; it annulled that interest decision and ordered the State Secretary to reimburse the €136 court fee for the cassation appeal. No costs were awarded (paras 5–6). The general tax credit of €779 set by the Court of Appeal stands.

The pilot stationed in France (HR 22 April 2016)

Facts

The taxpayer lived in the Netherlands. In 2009 he was a pilot for a British airline whose effective management was in the United Kingdom. He was stationed in London until 26 February 2009 and from 27 February 2009 at an airport in France. His employment income for the French period was €81,284; for the UK period, €5,057, relief was granted and was not in dispute (paras 2.1.1–2.1.2).

He argued that Article 15(3) did not apply, so that under Article 15(1) and (2) France alone could tax the French-period income and the Netherlands had to exempt all of it, reducing the assessment to nil. In the alternative the parties agreed that, if Article 15(1) applied, 65% of that income was taxable in France and 35% in the Netherlands, giving exemption relief on €52,501 (Court of Appeal, paras 3.1.2 and 3.2). Under Article 24 point A.2 the Netherlands exempts income that may be taxed in France under Article 15(1); Article 15(3) is not in that list.

The District Court and the Court of Appeal

His argument rested on the definition introduced in Article 3(1)(e) of the 1977 OECD Model: “international traffic” means transport by a ship or aircraft operated by an enterprise that has its place of effective management in a Contracting State. Since his airline was managed in the United Kingdom, its flights were not “international traffic” in the Franco-Dutch relationship, he said.

The District Court of Noord-Holland (12 September 2014), whose findings and reasoning the Court of Appeal quoted at length, rejected this. The 1973 Convention contains no definition, nor did the 1963 OECD Model (para. 4.6). The definition makes sense in the OECD Model because Article 15(3) of that model gives the taxing right to the state of effective management; Article 15(3) of the Convention gives it to the state of residence, so the place of management is irrelevant, and a reading that sharply narrows the provision cannot have been intended given its clear text (paras 4.9–4.10). Dynamic interpretation did not arise, because the provision was not modelled on the OECD Model and no change of view by the parties had been shown; the Dutch treaty policy notes of 1987, 1996, 1998 and 2011 favour OECD-conforming readings only of provisions taken from the OECD Model (para. 4.11). The 1973 explanatory note said that the Convention was almost entirely in line with the Dutch treaty pattern, not with the OECD Model, and its passage on shipping and air transport concerned Article 8 (paras 4.12–4.13). The court also rejected an equal treatment argument: the inspector did not dispute that Dutch-resident pilots stationed in Italy were exempted, but the Netherlands–Italy treaty (Trb. 1990, 86) contains an OECD-style definition in its Article 3(1)(g), so the cases were not comparable (paras 4.15–4.16).

The Amsterdam Court of Appeal confirmed that decision on 28 May 2015. The taxpayer’s contention that all treaties the Netherlands concluded after 1977 contain the OECD definition did not alter the fact that this one does not, and the taxpayer had accepted at the hearing that nothing showed the two states had in mind the OECD meaning, which departs from ordinary usage (para. 4.2.2.1). Nor was this a mere drafting difference: the treaty text is substantially different and unambiguous (para. 4.2.2.2). The court also rejected an argument based on free movement of workers within the EU/EEA. That reciprocal rights and obligations in a bilateral treaty apply only to income from those two states is an inherent consequence of bilateral treaties, as the Court of Justice held in D (5 July 2005, C-376/03); Article 15(3) is an integral part of the treaty’s overall balance and cannot be detached from it as a “disadvantage”, so the pilot was not in the same situation as a colleague with Italian income (para. 4.2.3.2).

The Supreme Court’s reasoning

The ground of appeal argued that the Convention must be interpreted dynamically and that the 1977 OECD definition limits Article 15(3) to aircraft operated by an enterprise managed in one of the two states (para. 2.3.1). The Supreme Court (Koopman, Fierstra, Van Hilten) rejected it without an Advocate General’s opinion; none is mentioned in the judgment.

It noted that Article 15(3) allocates the taxing right to the state of residence and so differs from the corresponding OECD provision in both its 1963 and post-1977 versions, which give the right to the state where the effective management of the enterprise is situated (para. 2.3.2). It then held:

In view of the allocation of employment income to the state of residence in Article 15(3) of the Convention, which clearly departs from the OECD Model Convention, and given that no change in the contracting parties’ views on the interpretation of this provision has been shown, no significance can be attached, in interpreting the term ‘international traffic’ in Article 15(3), to the definition of that term included from 1977 in Article 3(1)(e) of the OECD Model Convention, which is absent from the Convention. It must therefore be assumed that the allocation rule of Article 15(3) also applies in a case such as this, in which the enterprise operating the aircraft is established in a third country.

The argument based on Article 3(2) failed too: neither the provisions cited in the ground nor any other Dutch provision require “international traffic” to be read as pointing to the state of effective management (para. 2.3.4).

Outcome

The appeal was dismissed in all its parts (para. 2.4), without a costs order. The French-period salary of €81,284 remained taxable only in the Netherlands under Article 15(3), with no exemption relief.

How the judgments fit together

The model conventions as aids, not as authority. The India and France judgments apply the same method to opposite effect. Where a treaty provision follows the model, as Article 14(1)(a) does, the model commentaries are a legitimate guide, and the Supreme Court was prepared to read across from the commentaries on Article 5 to Article 14 because the two concepts perform the same function. Where a provision clearly departs from the model, as Article 15(3) of the French Convention does by giving crew pay to the state of residence, a later model definition built for the model’s different allocation rule cannot be imported, at least without evidence that the treaty partners’ own views have changed. In both cases the decisive factor was the text the two states agreed and its relationship to the model they worked from, not what the Netherlands later agreed in other treaties.

Function over label. The Indian judgment sits uneasily with the Court of Appeal’s statement that a fixed base and a permanent establishment are different concepts to be interpreted autonomously. The Supreme Court upheld the decision while basing the permanence test on the similarity in function of the two concepts. It also did not adopt the District Court’s six-month yardstick or the Advocate General’s view that six months is as a rule sufficient; it said only that six months is not a minimum. Nor did it rule on the Advocate General’s point that only pre-2000 OECD commentaries form part of the context, or on his view that “regularly available” relaxes rather than tightens the test. Between one day and six months, the question is left to the facts, with duration and the one-off or recurrent character of the work as the stated factors.

What an exclusive allocation leaves the residence state. The UK case shows the limits of a treaty rule from the other side. Exclusive taxation in the source state means that the Netherlands may not use the lump sum to raise its income tax, whether directly, through progression or through the income-dependent phase-out of the general tax credit, because that credit is part of the tariff. Protocol X lets the Netherlands count the lump sum for personal deductions and income-related schemes, but the courts read that narrowly. At the same time the treaty reaches only the taxes it covers. National insurance contributions, levied in the same assessment and reduced by the national insurance part of the same credit, are outside it, so domestic law applies in full. A single credit is thus split into two parts with different treaty consequences.

Open questions. The India judgment gives no threshold below six months and no guidance on recurrent short projects beyond naming the factor. The France judgment answers the question for that treaty only; the District Court’s comparison with the Italy treaty shows that the outcome depends on whether a definition of international traffic is present. The UK judgment deals with the general tax credit; other credits and income-dependent schemes were not before the court, and the parliamentary history’s examples (gift deduction threshold, specific healthcare costs, healthcare allowance) indicate the intended reach of Protocol X rather than its limits.

What it means in practice

Short foreign projects of the self-employed. Under the Netherlands–India Convention, an independent professional who stays in India for less than 183 days in the fiscal year concerned is taxable there only if he has a fixed base regularly available to him. A one-off project of about three months is unlikely to meet that test on the reasoning upheld here, even if the person lives and works at the site every day. The 183-day test in Article 14(1)(b) counts days per fiscal year; the Court of Appeal applied it to the 72 of the diver’s 89 days that fell in 2009 (para. 4.4). Useful records are the contract (fixed term or open-ended), the dates of presence, whether the work is repeated at the same site, and what facilities were at the person’s disposal.

Exemption without foreign tax. In the Indian case the taxpayer claimed exemption relief in his objection for income that India had not taxed; what was at stake was the Netherlands’ own right to tax, not double taxation. The French judgment does not say whether France taxed the pilot’s salary. In both cases the outcome turned on the treaty conditions alone.

UK pension lump sums. For a lump sum paid at or around the start of a periodic UK pension, the Netherlands may not levy income tax on it or use it to reduce the income tax part of the general tax credit. It may count it towards the national insurance part of the credit, and the Zvw contribution base was not disputed in this case. A Dutch resident who cannot report such a sum correctly in the online return can protect against tax interest by filing a supplementary letter with correct information, on time, expressly asking that it be treated as part of the return. Keep the return, the letter and proof of the date of sending.

Aircrew under the Netherlands–France Convention. A Dutch-resident pilot or cabin crew member working aboard aircraft in international traffic is taxable only in the Netherlands under Article 15(3), whoever operates the aircraft and wherever it is managed. A change of base in the course of the year, as in this case, can change the applicable treaty; each period should be analysed separately, and the treaty concerned checked for a definition of international traffic before assuming that a ruling under another treaty applies.

Status

Each judgment ended the proceedings: the appeals in the Indian and French cases were dismissed, and in the UK case the Supreme Court decided the case itself. There was no referral back in any of the three.

The wording applied in each case matches the text in our sources: the Dutch text of Article 14(1) of the Netherlands–India Convention quoted by the Advocate General as it read in 2009 is the text in our current version; Article 15(3) of the Netherlands–France Convention as quoted by the District Court matches our version in force from 24 July 2005; and our text of the Netherlands–United Kingdom Convention incorporates the Protocol of 12 June 2013, which predates the 2016 year in issue. Our treaty pages show no modification by the Multilateral Instrument of Article 14 of the Netherlands–India Convention, Article 17 or Protocol X of the Netherlands–United Kingdom Convention, or Article 15 of the Netherlands–France Convention. The tax interest ruling applies Article 30fc(4) AWR in its 2016 text; we do not have the current text of that provision in our translations.

Provisions discussed

• Netherlands–India Double Taxation Convention: Art. 14, Art. 5
• Netherlands–UK Double Taxation Convention: Art. 17, Protocol X, Art. 2
• Netherlands–France Double Taxation Convention: Art. 15, Art. 3

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How to cite

Case law review by BCA EU, for information. Quotations from the judgments are our translations; only the original texts published by the courts are authoritative. Judgments checked on the official sources on 30 October 2026. This page is not legal or tax advice.