The Netherlands has made a change to its tax treaty with Tunisia by cancelling the tax sparing credit. The change will take effect on January 1, 2011. Under the tax sparing credit the Netherlands sets-off more tax than is actually paid in the source country.
According to the Ministry of Finance’s press release, the tax sparing credit was originally intended to avoid nullifying the lower tax rates applied by Tunisia to stimulate investment in the economy, by levying the full tax rate in the Netherlands. However, as no reference to specific incentive measures is made in the treaty, the effect of the credit is that the Netherlands grants a general subsidy for investments in Tunisia.
The tax treaty between the Netherlands and Tunisia dates from 1995, and stipulates that the tax sparing credit can be cancelled after 15 years. The Netherlands is now making use of that possibility, in particular because no similar agreements have been made with other countries in the region, such as Morocco. In all other respects, the tax treaty with Tunisia remains unchanged.