On December 24, 2021 the Dutch Supreme Court ruled on the interpretation of Article 15, Paragraph 3 of the Convention between the Kingdom of the Netherlands and the Swiss Confederation for the elimination of double taxation with respect to taxes on income and the prevention of tax evasion and avoidance.

Facts

Since April 1, 2014 the taxpayer has been employed as “Second mate” by A SA (A). A is a resident of Switzerland. The taxpayer carries out his work on ships of B SA (B). B is an affiliated entity of A.

B’s headquarter is located in Switzerland. B furthermore has offices in several other countries, a.o. in the Netherlands. B provides offshore services to clients which are active in the oil and gas industry. The main services B provides are the laying of pipelines and the removal of platforms. C-ship is one of the ships in B’s fleet. C-ship scan lift and transport large platforms in one go. C-ship is also capable of laying pipelines for oil and gas transport.

To finalize its built C-ship was transferred from the shipyard, which is located in D-country, to E. For this the ship left/sailed from D-country on November 18, 2014 to be completed there and docked in F-port on January 8, 2015. On August 6, 2016, the ship sailed for the first time for tests in the North Sea.

In 2014 and 2015 the taxpayer worked on board of C-ship. From April 30, 2014 the taxpayer worked for five periods at the yard in D-country. (April 30 - 11 June 11, 2014; July 16 - 19 July 19, 2014;, July 21 - July 26, 2014; July 28 - August 20, 2014; and September 30 - November 1, 2014). During part of the trip of the ship from D-country to the Netherlands the taxpayer worked on the C-ship. For this he embarked in Singapore on November 26, 2014 . On December 18, 2014 the taxpayer disembarked in South Africa. From December 18, 2014 until the end of 2014, the taxpayer was on leave. In 2015, the taxpayer again worked on the ship.

The taxpayer has not performed any activities in Switzerland.

The income of the taxpayer was not subject to taxation in Switzerland. Neither for 2014, nor for  2015.

The dispute

The first plea of the taxpayer concerns an appeal to the principle of legitimate expectations. The taxpayer is of the opinion that it can derive legitimate expectations from statements, that Switzerland and not the Netherlands is authorized to tax the income in a situation such as the present case, that were made on behalf of a tax inspector in (comparable) legal proceedings of other taxpayer. The taxpayer in those proceedings performed work on another ship of the same company as the company for which the taxpayer in the underlying case carried out work.

With its second plea the taxpayer contests the judgment of the Court that C-ship was not exploited for the transport of persons or goods in international traffic during 2014 and 2015. According to the taxpayer, the wage costs of employees incurred during the construction, completion and transport movements prior to the ship's first commercial activities should also fall within the scope of Article 15, Paragraph 3 of the Dutch-Swiss DTA. According to the interested party, it is also in line with the aim and purport of both Article 8 and Article 15, Paragraph 3 of the DTA that transport movements prior to the first commercial activities fall within the scope of these Articles.

The analysis of the Dutch Supreme Court

The text of the Dutch-Swiss DTA is as similar as possible to the 2008 OECD Model Convention. Articles 3, Paragraph 1, sub g, 8 and 15, Paragraph 3 of the Dutch-Swiss DTA correspond verbatim to a translation of the English text of Articles 3, Paragraph, 1, sub e, 8 and 15, Paragraph3 of the 2008 OECD Model Convention. Therefore according to the Dutch Supreme Court, the OECD Commentary on the latter Articles is of great significance for the explanation of the aforementioned articles of the Dutch-Swiss DTA.

Under Article 15(3) of the 2008 OECD Model Convention, a remuneration derived in respect of an employment exercised aboard a ship or aircraft operated in international traffic, or aboard a boat engaged in inland waterways transport, may be taxed in the Contracting State in which the place of effective management of the enterprise is situated. It follows from the OECD commentary on Article 15, Paragraph 3 of the 2008 OECD Model Convention that this allocation rule is related to and based on the principle of Article 8 of the 2008 OECD Model Convention. According to the OECD commentary, the allocation rule for profits stemming from the operation of ships in international traffic as laid down in that article (Article 8 of the OECD Model Convention), refers to profits directly related to commercial transport of persons and goods by ship in international traffic and related and ancillary activities. Given the great significance of the OECD commentary for the interpretation of the Dutch-Swiss DTA, the foregoing also applies to the interpretation of Article 15, Paragraph 3 of the Dutch-Swiss DTA.

According to the Dutch Supreme Court he facts as established by the Court of Appeal allow no other conclusion than that the ship is intended for the lifting and displacement of large platforms and the laying of pipelines for oil and gas transport, and that any transport of persons and goods on the ship is ancillary to the main activity. Therefore it cannot be said that the results from the operation of the ship are directly related to the commercial transport of persons and goods by ship in international traffic and therewith related and ancillary activities. The question whether Article 15, Paragraph 3 of the Dutch-Swiss DTA also applies during the construction phase of a ship intended for use in international traffic therefore needs no discussion. Therefore the plea fails.

According to the Dutch Supreme Court the first plea cannot lead to cassation either. The Supreme Court is furthermore of the opinion that it is not required to substantiate why it has reached this decision. The reason here for is that when assessing the complaint, it is not necessary to answer questions that are important for the unity or development of the legislation (see Article 81(1) of the Wet op de rechterlijke organisatie (Judicial Organization Act)).

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