# Avoiding Double Taxation



## Alltimegreat1 (Feb 25, 2015)

I'm asking this on behalf of a friend who holds both US and Dutch citizenship. He's a resident of the Netherlands and works for a Dutch company.

However, he took some leave and has spent the past two months working inside the US for a US-based company, and is returning to the Netherlands now.

Should/Can he report his entire worldwide income to the Dutch tax office and then file an FEIE with the IRS for his entire worldwide income?


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## OzboyfromCH (Mar 27, 2020)

what about the last three years? He doesn't seem to meet the substantial period tax for US tax purposes if he only spent 2 months this year and none in the preceding two years. However, if he exceeded 183 days collectively in the three year period, he passes the test and he will be liable for US tax.


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## Bevdeforges (Nov 16, 2007)

Actually, it's more likely the other way around. Declare worldwide income to both the Dutch and the US tax authorities. Then claim the FEIE on the income earned while physically present in the Netherlands. There is a place on the 2555 form (to claim the FEIE) to declare your travel to the US. One of the columns is for business income related to your period spent in the US. That is the part of your worldwide income on which you'll owe US taxes.

I don't know how the US-Dutch tax treaty accounts for income earned while overseas, but that would apply to avoid double taxation.


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## Moulard (Feb 3, 2017)

A tax resident of the Netherlands would generally have to report their global income to the Dutch tax office.

By virtue of their US citizenship they would have to report their global income to the IRS.

The Tax treaty will include the rules that reduce double taxation that results. 

All treaties are different, but broadly.. this is what the US-Dutch treaty is likely to say...

Work performed in the United States would be considered US Sourced and the IRS would have the primary right to tax that income.
Work performed in the Netherlands would be considered Dutch sourced and the Belastingdienst would have the primary right to tax it. 

Both countries are to provide a credit for the taxes paid to the other taxing authority according to their internal tax laws.

On the US Side...
According to the US IRC they have option to claim a foreign tax credit for Dutch income taxes paid on their Dutch sourced income. (form 1116)
Alternatively they can use the Foreign Earned Income Exclusion to exclude that portion of their earned income that is Dutch sourced assuming that they meet the eligibility tests. The core of those tests are that they must have lived in the Netherlands for a full calendar year or 330 consecutive days. (form 2555)
Its worth noting that there are limits on what can be exlcuded using form 2555 - Foreign employer pension contributions for example cannot be excluded even though they may be part of their salary
With one possible exception, they cannot claim a foreign tax credit or exclude income for for the work performed in the US.

On the Dutch side, 
Similar would apply. They would be able to claim a deduction, credit or other recognition of the US taxes paid according to Dutch tax law.

The exception I mention is that some tax treaties with the US allow for a tax resident of the other country who is also a US citizen, who performs work in the US to re-source that income - basically the US cedes the primary right to tax that income and allows the person to claim a foreign tax credit (re-sourced income category form 1116)

They can find the actual treaty and explanation of its clauses here.




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Netherlands - Tax Treaty Documents | Internal Revenue Service


Netherlands - Tax Treaty Documents




www.irs.gov


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