Dutch mortgage interest deduction for foreign taxpayers
On 9 February 2017, the Court of Justice of the European Union (“CJEU”) ruled that the Netherlands must allow non-resident taxpayers a proportional tax deduction of mortgage interest given that the non-resident taxpayer cannot claim deductions for personal and family circumstances in the Member State of residence due to a lack of taxable income. This judgement is not limited to the Netherlands nor to mortgage interest deductions, but effects all Member States and includes all kinds of tax deductions in view of a taxpayer’s personal and family circumstances.
Usually the Member State of residence takes into account personal and family circumstances by allowing certain deductions when determining the amount of income tax due. However, in case there is not sufficient taxable income in that Member State, there is no room for such deductions. For people earning their income in other Member States this may result in no deductions at all.
Prior to the aforementioned judgement, people earning most of their income in one other Member State were allowed to benefit from the personal and family deductions available in that State. For instance, Spanish residents working in the Netherlands and earning at least 90% of their worldwide income there, were able to deduct the mortgage interest expense for their Spanish home from their Dutch taxable income.
The CJEU Ruling
The CJEU’s most recent judgement means that deductions for personal and family circumstances have to be applied proportionally. For instance, Spanish residents earning 60% of their worldwide income in the Netherlands, 40% in any other (non-resident) State, and non in Spain, can now claim a 60% deduction in the Netherlands with respect to their mortgage interest expense for their Spanish home.
For non-resident taxpayers who reside in a European Member State where they have no significant income the CJEU’s judgment provides opportunities to (partially) claim tax deductions in the other Member State(s) where they are taxed. This includes all deductions in view of personal and family circumstances available in that Member State.
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