[Robert1969]

Hi,
I worked in the US as a research scholar with a J1 visa from 2004 until 2007. For the first 2 years I was tax exempt according to the Dutch-US tax treaty but lost the exemption retroactively when I overstayed for a year.
At the moment I am a resident of the Netherlands but I want to go back to the US as a research scholar again in 2010. It is not clear to me if I would be tax exempt or not. In some tax-treaties from other countries (like France) it explicitely says that exemption can be claimed only once and there appears to be no mention of this in the Dutch-US treaty. Does this mean that I would be tax-exempt again?

Thanks,
Robert

[MukatA]

Ye, if your return back to U.S. on J1 research after spending a couple of years in your home country, you will get treaty benefits once again (unless the tax treaty between your country and the U.S. disallows it).

Between to J1 periods you must meet residency requirement of country.

[Five Rings]

Here I have to reluctantly this agree with MukatA.

The treaty (Art. 21) plainly states:
1. An individual who visits one of the States for a period not exceeding two years for the purpose of teaching or engaging in research at a university, college or other recognized educational institution in that State, and who was immediately before that visit a resident of the other State shall be taxable only in that other State on any remuneration for such teaching or research for a period not exceeding two years from the date he first visits the first-mentioned State for such purpose. If the visit exceeds two years, the
First-mentioned State may tax the individual under its national law for the entire period of the visit, unless in a particular case the competent authorities of the States agree otherwise.

NOTE THE WORDS "FIRST VISITS". You have already visited. You, I believe, are no longer entitled to this exclusion.

[Robert1969]

Thanks Mukata and Five Rings for your answers. Now I'm confused, though. Is Five Rings correct and can I not claim the treaty benefits again? I forgot to mention in my first question that I'm planning to go back to the same University and do the same kind of research.

[Five Rings]

It is my opinion that you cannot claim the benefit considering the wording of the treaty.

[AtlantaTaxExpert]

I concur with Five Rings.

Your two-year tax exemption was a one-shot deal. If you return for a second visit, you will be taxed as a resident alien, and be subject to all taxes (FICA, federal income, state income) that a U.S. citizen pays.

[Robert1969]

Thanks again for your answers,
I was hoping I could claim exemption again. In the footnotes of table 2 of publication 901 it does not say that the exemption for researchers from the Netherlands is a one-time deal, while it does say so for some other countries. The wording in the actual treaty indicate it was a one-time deal though, so I guess the IRS slipped up in publication 901.

[AtlantaTaxExpert]

That happens some times, which is why I normally review BOTH the IRS Pub 901 and the treaty itself.

[Robert1969]

A friend of mine from the UK has just returned to the US as a research scholar and he says he can claim the tax treaty benefits again. So I looked into the UK tax treaty for comparison and found a very similar treaty using the same wording as the Dutch treaty:

ARTICLE 20
Teachers
1) A professor or teacher who visits one of the Contracting States for a period not exceeding two
Years for the purpose of teaching or engaging in research at a university, college or other recognized
Educational institution in that Contracting State and who was immediately before that visit a resident of
The other Contracting State, shall be exempted from tax by the first-mentioned Contracting State on any
Remuneration for such teaching or research for a period not exceeding two years from the date he first
visits that State for such purpose.

So, it seems that he cannot claim benefits again. However, in the technical explanation of the treaty there is the following paragraph:

A person who meets the qualifications of this
Provision may again claim its benefits if he first reestablishes his residence in the other
Contracting State. In such case, the person claiming these benefits on a subsequent occasion
Must first satisfy the competent authority of the first-mentioned Contracting State that he had
Become a bona fide resident of the other State for a substantial period (normally at least
One year).

Maybe I'm clinging onto straws here, but wouldn't they have used other wording in UK treaty if they meant that the benefits could be enjoyed multiple times.

Thanks, Robert

[AtlantaTaxExpert]

Robert:

Sorry, but I think you are clinging at straws. Below is the entire extract for Article 21 for the Dutch Treaty. It has some rather stringent requirements, to include a retroactive tax clause if your exceed the two-year limit. Given these facts, I cannot see where they would allow a second tax-exempt visit .

ARTICLE 21
Professors and Teachers

Paragraph 1 provides an exemption from tax in one State for an individual who visits that State for a period not exceeding two years for the purpose of teaching or engaging in research at a university, college or other recognized educational institution in that State if the individual is a resident of the other Contracting State immediately before his visit begins. The exemption applies to any remuneration for such teaching or research. The exemption from tax applies for a period not exceeding two years from the date he first visits the Contracting State (the "host State") for the purpose of teaching or engaging in research at a university, college or other recognized educational institution there. If a professor or teacher remains in the host State for more than the specified two-year period, he may be subject to tax in that State, under its law, for the entire period of his presence. However, if the competent authorities so agree in a particular case, the exemption may apply for two years even if the individual's stay exceeds two years. It is anticipated that the competent authorities would agree to such an extension only in cases where the departure of the individual is delayed beyond the end of the two-year period because of unforeseen circumstances.

The host State exemption will apply if the teaching or research is carried on at an accredited university, college, school or other recognized educational institution.

Paragraph 2 provides that Article 21 shall apply to income from research only if such research is undertaken by the individual in the public interest and not primarily for the benefit of some other private person or persons.

As stated in paragraph 3 of Article 22 (Students and Trainees), an individual may not claim the benefits of this Article if, during the immediately preceding period, he has claimed the benefits of Article 22.

There is no provision in the U.S. or OECD Models dealing with professors and teachers. It is not standard U.S. treaty policy to provide benefits to visiting teachers by treaty. It is included in the Convention because a similar provision is found in the prior Convention. Under the prior Convention, however, the exemption applied for two years even if the individual's stay exceeded a two year duration.

Under paragraph 2(b) of Article 24 (Basis of Taxation), the saving clause (paragraph 1 of Article 24) does not apply to the benefits conferred by one of the States under Article 21 if the recipient of the benefits is neither a citizen of that State, nor, in the case of the United States, is a lawful permanent resident (i.e., a "green card" holder). Thus, a Netherlands resident who visits the United States for two academic years as a professor and becomes a U.S. resident according to the Code, other than by virtue of acquiring a green card, would continue to be exempt from U.S. tax in accordance with this Article so long as he is not a U.S. citizen and does not acquire immigrant status in the United States. The saving clause does apply to U.S. citizens and immigrants.

[mlssa]

Hi all,

I have a question and I would appreciate very much if you could answer at your earliest convenience,

Do you know if the US based income is taxed in the NL under this particular treaty if exempt in the U.S ?

Thank you

[AtlantaTaxExpert]

I cannot answer that question. The NL tax authorities is your best source of information on that.