Multinationals being accused of tax-dodging practices caused political stand against cross border tax planning strategies applied by internationally operating enterprises. This has led, among other things, to amendments to the EU Parent Subsidiary Directive (Moeder-dochterrichtlijn). At the opening day of the Dutch Parliament (Prinsjesdag) on 15 September 2015, the Dutch Government published its proposal for the implementation of these amendments into national laws. Below we will briefly describe the proposed anti-abuse provisions that affect the fiscal position of non-resident companies holding a substantial interest (aanmerkelijk belang) in a Dutch subsidiary. It is anticipated that the proposed legislation will become effective as per 1 January 2016.
Non-resident investors and Dutch corporate income tax
Under the legislative proposal, a non-resident company is subject to Dutch corporate income tax if it holds at least 5% of the issued capital in a Dutch company for the main purpose of obtaining a tax advantage within the framework of artificial arrangements. Arrangements are not considered artificial when there are ‘valid commercial reasons reflecting economic reality’. This is generally the case if there is sufficient substance at the level of the entity which holds the substantial interest in the Dutch company.
Cooperatives and Dutch dividend withholding tax
The Dutch cooperative is frequently used as a holding entity in active investment structures because of the possibility to repatriate dividends to non-resident members without withholding any Dutch dividend tax. To eliminate this tax planning opportunity, the Dutch government introduced already in 2012 a conditional dividend withholding tax liability for cooperatives. In addition, the legislative proposal now stipulates that Dutch resident cooperatives will be obliged to withhold dividend tax on dividends distributed to their members, if one of the main purposes is the avoidance of dividend withholding tax or foreign tax and the arrangements which were put in place are artificial. On the other hand, in order to avoid double taxation, the Dutch dividend withholding tax may be exempted or reduced for non-resident investors if a double tax treaty is applicable.
Under the legislative proposal, a non-resident holder of a substantial interest in a Dutch company will not be subject to Dutch corporate income tax if it (i) has an operational business enterprise to which it can allocate its interest in the Dutch company, (ii) functions as a strategic top holding company, or (iii) functions as an intermediate holding company with sufficient substance. To qualify as an operational business enterprise or a company with sufficient substance, a company at least needs to have an office space and employees directly working for the company. Other substance requirements include:
Whether substance requirements are met depends on all facts and circumstances.
Do you want to obtain substance in The Netherlands? We are more than happy to assist you with the structuring of your company to meet the Dutch substance requirements.
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