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DOUBLE TAXATION TREATY BEWEEN US AND THE NETHERLANDS
The US and The Netherlands concluded a bilateral estate tax treaty in 1969. It applies to Federal estate tax in the US and the succession duty and transfer duty at death in the Netherlands and also to taxes of a substantially similar character imposed subsequently by either Contract State.
Key Points:
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Immovable property, business property of a permanent establishment and assets pertaining to a fixed base used for the performance of professional services may be taxed in the State of situs.
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Property passing to a spouse from a decedent who was a citizen or domiciliary of the US which is taxable in the Netherlands under Articles 6 or 7 may be included in the taxable estate only if its value exceeds 50% of all property which may be taxed in the Netherlands.
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Where the value of property is taxable under Articles 6 or 7, a State may not impose any tax if the aggregated value of the property does not exceed $30,000.
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A State which imposes tax on the basis of the decedent’s domicile therein or citizenship allows a credit for property taxable under Articles 6 or 7 in the other State.
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Where both States impose tax with respect to property which is not taxable under Articles 6 and 7, then (a) if decedent was citizen of one State and domiciled in other State for 7 years, the State of citizenship allows credit for amount of tax imposed by other; (b) if decedent was citizen of both States, then the State of which he was not a domiciliary allows a credit for tax imposed by the other State; (c) otherwise, each State allows a credit in the amount which bears the same proportion to the amount of its tax attributable to such property, or to the amount of the other State’s tax attributable to the same property, whichever is less, as the former amount bears to the sum of both amounts.
Example
Eric, a dual citizen of the US and Netherlands, was domiciled in both the US and the Netherlands at the date of his death in 2023 .His estate comprised the following assets:
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House in Amsterdam, valued at $15,000,000
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Business Property of Permanent Establishment in Rotterdam, valued at $10,000,000
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Condo in Los Angeles valued at $10,000,000
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Cessna Aircraft, registered and parked in the US, valued at $10,000,000
He bequeathed his house in Amsterdam to his only living relative, his daughter, Sarah, and the balance of his estate to his friend, Sam.
For the purpose of establishing fiscal domicile, the taxing authorities of the two States were unable either to determine in which State Eric had made a permanent home or with which State he had the closest personal relations. It was mutually agreed by the two States that each should allow to the other a credit in the amount which would bear the same proportion to the amount of its tax attributable to such property, or to the amount of the other State’s tax attributable to the same property, whichever is lesser, as the former amount would bear to the sum of both amounts.
Assets in the Estate:
US Assets $20,000,000
Dutch Assets $25,000,000
Entire Assets $45,000,000
Tax Rates and Exemptions for Year 2023:
US Exclusion Amount $12,920,000
US Unified Credit $5,113,800
US Estate tax on first $1,000,000 $345,800
US Estate tax on balance 40%
Dutch exemption amount €22,918 (child)
Dutch exemption amount (unrelated party) €2,418
Dutch Estate tax 10% below €138,641 (Child)
20% above €138,641 (Child)
Dutch Estate tax 30% below €138, 642 (unrelated party)
40% above €138,642 (unrelated party)
Basis of taxation in US Worldwide assets of citizens and domiciliaries
Situs assets of non-residents
Basis of taxation in Netherlands Worldwide assets of residents
Assume $1 = €1
Calculation of US Tax Liability:
US$
House in Amsterdam 15,000,000
Condo in Los Angeles 10,000,000
Business Property in Rotterdam 10,000,000
Cessna Aircraft 10,000,000
Gross Estate 45,000,000
Estate tax on first 1,000,000 345,800
Estate tax on balance @ 40% 17,600,000
Tentative Tax Liability 17,945,800
Less: Unified Credit 5,113,800
Tentative Tax Liability 12,832,000
Less: Tax Credit 5,923,302* Net Tax Liability 6,908,698 Value of Net Estate 38,091,302
Tax Liability: $6,908,698
*Apportionment of Tax Liability between Sarah and Sam:
Sarah Tax Liability:
5,923,302 x 15,00,000 = $1,974,434
45,000,000
Sam's Tax Liability :
5,923,302 x 30,00,000 = $3,948,868
45,000,000
Calculation of Dutch Tax Liability:
€
House in Amsterdam 15,000,000
Business Property in Amsterdam 10,000,000
Condo in Los Angeles valued at 10,000,000
Cessna Aircraft 10,000,000
45,000,000
Sarah’s Tax Liability:
Business Property 15,000,000
Exemption Amount 22,918
14,977,082
138,641 @ 10% 13,864
Balance at 20% 2,967,688
Tentative Tax Liability 2,981,552
Less: Tax credit 1,376,296**
Tax Liability 1,605,256
Net Tax Liability: $1,605,256
Sam’s Liability:
Business Property in Amsterdam 10,000,000
Condo in Los Angeles valued at 10,000,000
Cessna Aircraft 10,000,000 Gross Taxable Estate 30,000,000
Less: Exemption 2,418
Net Value of Estate 29,997,582
138, 642 @ 30% 41,593
29,858,940 @ 40% 11,943,576
Tentative Tax Liability 11,985,169
Less: Tax Credit 5,532,400**
Tax Liability 6,452,769
Net Tax Liability: $5,532,400
**Calculation of Credit:
US Tax Liability: 12,832,000
Dutch Tax Liability: 14,966,721 (11,985,169 +2,981,552)
Lesser Amount: 12,832,000
Combined Amount: 27,798,721
US Tax Credit:
12,832,000 x 12,832,000= 5,923,302
27,798,721
Dutch Tax Credit:
12,832,000 x 14,966,721 = 6,908,697
27,798,721
**Apportionment of Credit between Sarah and Sam
Tax Credit: 6,908,697
Sarah’s Tax Credit: 1,373,160
Sam’s Tax Credit: 5,519,786
Sarah’s Tax Credit:
6,908,697 x 2,981,552 = 1,376,296
14,966,721
Sam’s Tax Credit:
6,908,697 x 11,985,169 = 5,532,400
14,966,721
Sarah' s Net Tax Liability: $1,974,434 + $1,605,256 = $3,579,690 (€3,579,690)
Sam' s Net Tax Liability: $3,948,868 + $6,452,769 = $10,401,637 (€10,401,637)