27 December 1990 Ruling HBW4125N1/6591N1 (E) F - Canada-Netherlands Income Tax Convention on Disability Pension

December 27, 1990

Dear  19(1)

Re:  Canada-Netherlands Income Tax Convention Article 18

This is in reply to your letter dated November 21, 1990, wherein you question the appropriateness of our Department dealing with the Dutch Ministry of Finance (the "Ministry") concerning the nature of your 24(1) for the purposes of Article 18 of the Canada-Netherlands Income Tax Convention. You also requested a copy of the correspondence we received from the Ministry or other information that we have on the above subject matter.

Paragraph 4 of Article 25 of the Convention provides that the competent authorities of the States shall endeavour to resolve by mutual agreement any difficulties or doubts arising as to the interpretation or application of the Convention. The term "competent authority" is defined in Article 3 to mean, in the case of Canada, the Minister of National Revenue or his authorized representative. In the case of the Netherlands, it is the Minister of Finance or his authorized representative.

In view of the above, our Department is only empowered to deal with the Ministry with respect to the application of the Convention.

24(1)

Unfortunately, we are unable to provide you with a copy of the reply we received from the Ministry as such correspondence between governments is privileged information and exempt from disclosure by virtue of section 13 of the Access to Information Act. We are, however, able to provide you with the following further details regarding the Dutch position:

The Dutch authorities have stated that any person insured by the State of the Netherlands in respect of his employment disability pension (including an ABP disability pension) is not insured under the Disablement Insurance Act (WAO) (Section 6(1)(a)). Furthermore, Section 8(1) of the General Disablement Benefits Act (AAW) states that any person insured under the Act, who is entitled to a disability pension under the Public Servants' Superannuation Act is entitled to an AAW benefits with the addition of a supplement, to which he is entitled by reason of his legal position. This means that if the ABP disability pension is equal to or higher than the AAW benefit, the person concerned cannot derive any right from the AAW. In this situation it is therefore impossible to receive an AAW benefit. Under the Decree of October 15, 1976 of the Dutch State Secretary for Social Affairs, however, which is based on Section 8(3) of the AAW, the Public Servants' Superannuation Fund may submit a monthly claim to the Disablement Insurance Fund up to the amount of the AAW benefit which the person concerned would have received if he was not entitled to an ABP disability pension.

Although the ABP disability pension is similar in nature to an AAW benefit, the pension is not allocated under Dutch social security legislation. This is not altered by the fact that the Public Servants' Superannuation Fund submits a claim to the Disablement Insurance Fund. It is not the person concerned but the Public Servants' Superannuation Fund that is entitled to the AAW benefit. The person concerned is entitled to an AAW benefit only if it is higher than his ABP disability pension. In this situation, the total amount which the person concerned receives from the Public Servants' Superannuation Fund should be split into an amount for the disability pension and an amount for the AAW benefit.

Since an ABP disability pension is not awarded under Dutch social security legislation, the Dutch authorities are of the opinion that the pension does not fall under Article 18(5)(b) of the Convention and that the first sentence of Article 18(3) of the Convention applies to the ABP disability pension. This means that the pension is fully taxable in the Netherlands, unless the recipient is a citizen of Canada. In that case taxation in the Netherlands is limited to 15% under Article 18(3)(a) of the Convention. In a situation where the ABP disability pension has to be split into a disability pension and an AAW benefit, the disability pension falls, in their view, under Article 18(3) of the Convention and the AAW benefit under Article 18(5)(b).

24(1)

We trust that this additional information wills be of assistance to you.

Yours sincerely,

Christine SavageActing DirectorProvincial end International Relations Division

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