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Written by:
Bas Hollenberg


Clawback Scheme

The option scheme for foreign taxpayers will become EU-proof

Minister of Finance Weekers will introduce a resolution stating that the so-called clawback or recovery scheme is inapplicable for foreign taxpayers who earn 90% or more of their income in the Netherlands.

Clawback scheme
Under the clawback scheme certain deductions that were made in previous years are reversed if the taxpayer no longer opts for resident taxpayer status, with a maximum look-back period of 8 years. It concerns deductions which relate to income which the Netherlands cannot tax, for instance the mortgage interest deduction for a home located in a foreign country. If a taxpayer’s income is almost entirely earned (90% or more) in the Netherlands, the Netherlands cannot refuse such a deduction, but when a person no longer chooses resident taxpayer status the deductions are reclaimed under the clawback scheme.

The future inapplicability of the clawback scheme is motivated by the fact that there are some cases before the EU Court of Justice in which the Netherlands will almost certainly not be able to recover the deductions. On July 6, 2011 the Court of Breda ruled that the clawback scheme cannot be applied on the deductions made in the years where the 90% condition was met. Furthermore, in the year in which resident taxpayer status was no longer chosen, deductions were still able to be claimed for the months worked in the Netherlands, three months in this particular case.

Option Scheme
Also evident from the Gielen judgement No. C-440/08, and the ruling of the Court of Breda (No. 10/2769, LJNBQ3849) from April 18, 2011 is that the Dutch are unreasonably hindered by the clawback scheme. The inapplicability of the penalty would mean that the existence of the option scheme provides sufficient justification for the denial of deductions (and other facilities) to foreign taxpayers who earn their income almost entirely in the Netherlands.

More deductions possible
The press release of February 23, 2012 falsely suggests that only the mortgage interest deduction is affected by the clawback scheme and that the new policy will only apply to this. The mortgage interest deduction is certainly one of the most important deductions which the Netherlands must allow, but not the only one. As previously stated it concerns more deductions which relate to income which the Netherlands cannot tax. The resolution will therefore have an impact on more than simply the mortgage interest.

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