Taxation of severance pay and international employment


In the Decree dated 25 January 2022, the State Secretary of Finance amended the policy on the allocation of taxation of international severance payments. This amendment takes effect immediately. Consequently, severance payments will in principle be taxed based on the complete (international) employment history with an employer, unless this is not possible due to circumstances.

Perhaps your employees have worked or might still be working internationally and may receive a severance payment upon the termination of their employment. What are your tax and withholding obligations as an employer in regard to the different countries in which your employee has worked in such a situation? This question has been discussed several times in recent decades. 

Application of the twelve-month guideline up to now

Generally, the Netherlands applied the twelve-month guideline (following the Decree of 23 April 2015), as formulated in the OECD commentary to Article 15 of the OECD Model Convention, for the allocation of taxation of severance payments in cross-border situations. To establish which country has the right to tax, the taxation rights of regular wages were taken into account. However, this was not the main interpretation of the twelve-month guideline of several treaty partners like Germany. This difference in allocation could lead to situations of double taxation or double non-taxation.

Allocation should now take place based on complete employment history 

Due to this existing risk of double taxation or double non-taxation, the State Secretary has decided to align the Dutch interpretation of the OECD commentary (and the twelve-month guideline) with the interpretation of the treaty partners. As of 5 February 2022, the new allocation policy is as follows: 

  • The (usually complete) employment history on which the amount of the severance payment is based, is taken into account. 

  • The twelve-month rule will only be applied, if the (complete) (international) employment history cannot be established and if the correct allocation cannot be reasonably determined in any other way.

  • Whether another country may actually levy taxes will be determined on the basis of the individual tax position during the reference period.


The State Secretary has illustrated the consequences of the new policy with the following examples:

  1. You live in the Netherlands and work for a Dutch employer. Your employment has lasted five years and you have worked in Germany for eight months during the last year. Based on the new rule, the allocation of your severance payment will be based on the (complete) five years of your employment. You will be entitled to a relief from double taxation for 8/60th part of the severance payment in the Netherlands, as you have worked in Germany for 8 months of those five years. 
  2. You live in the Netherlands and work for a Dutch employer. The course of your employment is not clear. The last twelve months you have worked in different countries: 190 days in Belgium, 35 days in Germany and 15 days in the Netherlands. In this situation, the twelve-month guideline is applicable. In the Netherlands you have the right to avoid double taxation for 190/240th over a granted severance payment. Based on the tax treaty (Article 15), Belgium may only levy taxes on your regular salary based on your physical working days in Belgium.

What does this mean for your organisation?

Did you receive a severance payment that was paid before 5 February 2022 and is your income tax assessment not yet final (i.e. not yet irrevocably established) on 5 February 2022? In that case, you could apply the aforementioned policy. However, you must be able to prove (upon request of the inspector) that this does not lead to (partial) double non-taxation. For severance payments paid as of 5 February 2022, the new Decree can be applied without conditions. 

Are you confronted with double taxation on the severance payment of an employee with an international employment history? Please contact your PwC advisor. The State Secretary has indicated that in such situations the Netherlands will (upon request) enter into a mutual agreement procedure based on the OECD commentary. Nevertheless, these procedures are often lengthy. We are happy to assist you with determining the best approach. 

Contact us

Daniël Sternfeld

Daniël Sternfeld

Partner, PwC Netherlands

Tel: +31 (0)61 089 28 89

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