The Republic of Bulgaria and the Kingdom of the Netherlands have concluded a new Double Tax Treaty for the avoidance of double taxation with respect to taxes on income and the prevention of tax evasion and circumvention ("The Treaty"). The Treaty was adopted with an Act of the 44th National Assembly on 14 January 2021 and will enter into force on 31 July 2021.
The new Treaty between Bulgaria and the Netherlands will replace the current one, adopted in 1995. Its signing is dictated by the changed economic situation since the end of the last century, as well as by the completely updated tax legislation in the country. The update of the Treaty is also caused by the changes in the field of international taxation, initiated by the G20 countries and the Organisation for Economic Co-operation and Development ("OECD") to counteract the reduction of the tax base and the transfer of profits.
In its most significant part, the new Treaty reflects the innovations in the Bulgarian tax legislation and the modern principles of international taxation, indicated in the OECD Model. The material scope of the Treaty has been expanded to include new types of taxes. The fundamental definitions of "resident" and "place of business" are fully in line with the OECD Model. A special Article 23 has been added to the new Treaty, which is aimed at overcoming the receipt of tax advantages in transactions whose sole purpose is to avoid paying higher taxes. This Article, as well as other provisions in the Treaty, aim to avoid abuses of tax advantages.
Unlike the current Treaty, pursuant to the new one, interest can be taxed at 5% withholding tax. A full withholding tax exemption on dividends is provided for under certain conditions. New procedures have been agreed upon between the States to facilitate tax collection.
The old method of avoiding double taxation has also been abandoned, and according to the new Treaty, this will happen through the tax credit method.