When considering taxation, let us assume the following:
A Pilot lives in the Netherlands (this is his country of residence) but the Pilot works in another country for an Employer (established in that country). Cross border situations are provided for by the tax treaty between the Netherlands (the country of residence) and country of employment. Such treaties determine which country has the right to collect tax; the country of residence or the country of employment.
Tax treaties are based on the OECD Model Tax Convention, which includes an article that applies specifically to Pilots who are listed separate from other employees. The Model Tax Convention assigns taxation rights to the country where the Employer’s business is established. However, the Netherlands has also negotiated treaties (with Luxembourg, France, Italy, the Uk and Spain among others) that deviate from the Model Tax Convention and assign taxation rights to the Pilot’s country of residence. Therefore it is important to examine the terms of the relevant treaty/ies carefully.
Needless to say, the country in which tax is payable can make a big difference to the amount of tax paid. An example would be in Spain, where pilots’ salaries are largely tax-exempt.
The tax treaty between the Netherlands and Germany is also worth mentioning in this respect. The two countries started negotiating a new tax treaty in the 1980s. The treaty that eventually entered into force on 1 January 2016 assigned the right to collect tax, on income earned by pilots, to the country of residence. However, Dutch pilots employed by large German airlines found this detrimental to their interests and so they sucessfully lobbied for the treaty to be amended for pilots. The treaty now assigns the taxation right to the country of employment; i.e. in this case Germany.
