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Dutch Government updates substance requirements
The taxation of multinational companies has been a hot topic for an extended period of time, and the discussions are not likey to fade any time soon. Each Government has it's own views and agendas on the subject. Taxand Netherlands explores the Dutch Government's response to the current political tax debate.
Although the Dutch Government favours global measures such as those proposed by the OECD and the G20, it does now propose a number of unilateral measures to implement additional substance requirements on finance/licensing companies. The Netherlands was one of the first countries which included substance requirements for finance and licensing companies in its tax law (2001). However, the Dutch Government acknowledges that the Netherland's tax treaty network in combination with its domestic tax legislation is attractive to foreign companies and is considered to be abused in certain finance and licensing structures. The Government has therefore proposed various measures to retain the beneficial regimes in the Netherlands while applying a proper framework for the use of finance/licensing companies by multinationals.
A recent report by IBFD shows that the tax treaties concluded by the Netherlands with developing countries do not differ significantly from other tax treaties concluded by these countries and that these countries are willing to conclude more beneficial treaties with other countries. However in order to meet the political pressure by (left wing) politicians the Dutch government proposes the following actions:
- A number of developing countries will be given the opportunity to include anti-abuse clauses in their existing tax treaties with the Netherlands
- The Netherlands will propose anti-abuse clauses in all new double tax treaties with developing countries
- The Netherlands will specifically contact the Government of Zambia to renegotiate the current tax treaty to give Zambia the opportunity to strengthen its tax position under the treaty with the Netherlands
- The Netherlands shall support tax administrations in developing countries in order to strengthen their capabilities
It can be questioned whether the measures with regard to treaties with developing countries will have a lot of impact considering that both countries negotiate and agree to a tax treaty. Developing countries know, in general, very well that a tax treaty with the Netherlands will result in additional foreign investments and are therefore willing to agree to a beneficial tax treaty.
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These measures show that the Dutch Government is willing to take steps to reduce perceived abuse of the Netherlands in tax structuring, and give both existing and new Dutch holding, finance and licensing companies clear guidance on the level of substance that is required. The measures with regard to substance should not impact the majority of current or future structures as these requirements are already common practice. However multinationals should review their current Dutch structures to determine whether additional actions are necessary.