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2013 corporate tax developments in the Netherlands
During 2013 the Dutch government showed a strong willingness to ensure that the Netherlands remains a competitive jurisdiction for foreign investments. These new measures show that the Netherlands is acting as a frontrunner to strike the right balance between competitiveness, transparency and (OECD) compliant legislation. Below is a summary of some of the relevant measures for corporate tax purposes:
In 2001, the Dutch government published safe harbour rules regarding Dutch substance requirements. It was essential for these requirements to be met in order for a Dutch company to obtain advanced certainty from the Dutch tax authorities by way of an APA/ATR. The requirements, for example, stipulate that at least 50% of the company’s directors should be Dutch residents and that its key decisions should be made in the Netherlands.
It is now common practise to use these requirements as a minimum for any structure set up in the Netherlands. The Dutch government announced that from 1 January 2014 these requirements will now not only apply to companies that have concluded an APA/ATR, but will also become applicable to all Dutch companies where activities consist of at least 70% group financing and licensing activities (or similar activities such as leasing activities).
It is important to note that these requirements only apply to financing and licensing companies and thus not to other types of companies, such as holding companies (for which no APA/ATR is requested). Companies should specify in their corporate tax return whether they meet these requirements. Group financing and licensing companies that do not meet the substance requirements but declare otherwise in their tax return, would be subject to an administrative penalty. In addition, the Dutch tax authorities may spontaneously exchange information with treaty partners about companies that do not meet the substance requirements.
In 2013, the Netherlands continued its tradition of maintaining and extending its extensive tax treaty network. One of the most important treaties concluded is with China. This treaty allows for a 5% dividend withholding tax rate and is one of the most favourable treaties concluded by China. Discover more about the China Netherlands tax treaty.
Another important recent agreement is with a much smaller jurisdiction, the island of Curacao (formerly part of the Netherlands Antilles). The new agreement reintroduces a 0% dividend withholding tax rate on dividend distributions; however, a limitation of benefits provision will be introduced. The dividend withholding tax rate will be 15% for dividends paid to parent companies that do not qualify under the limitation of benefits provision. However, this rate will be reduced to 5% up to and including 2019 for distributions by companies to their parent companies which hold a minimum interest of 25%. Furthermore, the Netherlands has confirmed that a frequently used structure to eliminate dividend withholding tax between the Netherlands and Curacao through the use of a Dutch Co-operative will be respected until (at least) the end of 2014.
The new agreement will probably not result in a major resurgence of Curacao as a tax planning location but will certainly offer new opportunities. The agreement is subject to parliamentary procedures in both countries and is expected to become effective on 1 January 2015.
Other developments include the Netherlands’ proposal to include anti-abuse measures (such as limitation on benefits tests) in tax treaties concluded with developing countries and it may renegotiate some treaties with developing countries. It is expected that new treaties with Latin-American countries, such as Colombia, will be concluded in the future. The tax treaty with Spain is also being renegotiated and is expected to be finalised in early 2014.
The Dutch Ministry of Finance published a new transfer pricing decree on 26 November 2013. The decree confirms that the Netherlands in general continues to follow the OECD Transfer Pricing Guidelines. A number of specific areas are addressed in the decree, for example:
- the treatment of centralised procurement activities
- captive insurance companies
- financial transactions
- shareholder costs
- documentation obligations
The decree also includes wording on the treatment of intangible assets which are in line with the Revised Discussion Draft on Transfer Pricing Aspects of Intangibles from the OECD (released on 30 July 2013). The right functions are key with regards to the management and control of the intangible assets, in order to be entitled to intangible related returns. Access Taxand’s response to the OECD discussion draft and the Taxand Global Intangibles Survey Report 2013 for more detail.
The new Decree also provides more clarity around the treatment of non-arm's length loans. Recent rulings from the Dutch Supreme Court are adopted to target financial transactions that do not meet the ‘arm’s length’ standard.
Quality tax advice, globally
The Dutch government has provided additional guidance on subjects such as substance and transfer pricing which are increasingly important to Dutch and foreign multinationals. This demonstrates the government’s willingness to present the Netherlands as a stable and transparent location to invest in and at the forefront of international tax developments. Traditional benefits of investing in the Netherlands such as the full participation exemption, the extensive treaty network, lack of capital tax, stamp duty, minimum taxes and no royalty/interest withholding taxes will continue to make the Netherlands one of the most attractive countries for foreign investments.
The measures with regard to substance should not impact the majority of current or future structures, as these requirements are already common practise in the Netherlands. MNCs should, however, review their current Dutch structures to determine whether additional actions are necessary and whether they are able to confirm in their tax returns that the substance requirements are met. Companies should review whether their structures meet the updated substance and transfer pricing guidelines overall and whether they can benefit from the new tax treaties concluded by the Netherlands.
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