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Substance rules update in the Netherlands


As of 1 January 2014, new rules on the Dutch substance requirements are applicable. These rules are introduced in response to the current political debate in the press on the taxation of multinational companies and shows that the Netherlands wants to develop a transparent tax system which meets the current international climate. Taxand Netherlands takes a look at the recent updates to the substance rules and discusses what effect they will have on multinationals.

In 2001 the Netherlands was one of the first countries which included substance requirements for financial service companies in its tax law. These requirements detail the minimum amount of equity at risk a company performing financing, licensing and leasing activities should be exposed to as well as the substance requirements that such company should meet, should it want to conclude a ruling (APA or ATR). The substance requirements include, for example, that at least 50% of the directors are Dutch residents, the bank account is in the Netherlands and that the (main) decisions are taken in the Netherlands. Similar requirements were copied and adopted by Luxembourg in 2011. Over time these requirements were also used for structures for which no APA/ATR was requested and it is currently common practice to use these requirements as a minimum for any structure set up in the Netherlands.

The following changes are applicable as of 1 January 2014:

  • The substance requirements concerning the amount of equity at risk and substance are not only applicable to financial service companies that have concluded an APA/ATR but are also applicable to all other Dutch financial service companies which benefit from treaty and/or EU directive benefitsFinancial service companies should specify in their corporate tax return whether they meet the requirements if they benefit from a treaty or EU directive
  • Financial service companies which want to conclude an APA with the Dutch tax administration as of January 1st need to agree to an exchange of information with the relevant foreign countries stating that an APA has been concluded. No exchange of information will be applicable if more substance/nexus in the Netherlands then the minimum substance requirements is present.
  • ATR requests concerning holding companies will only be dealt with by the tax administration if the holding company at least satisfies (or expects to satisfy in the near future) conditions similar to the existing substance conditions for financial service companies

During a recent meeting with the ruling team of the Dutch tax administration further clarity was provided on some of the substance requirements, for example on the outsourcing of the administration to foreign shared service centers, the use of service providers (trust) and taking the main decisions during board meetings in the Netherlands. Some changes are applicable on these requirements.  It was also announced that the current decrees on financial service companies will be updated in the near future.

Discover more: Substance rules update in the Netherlands

Your Taxand contact for further queries is:
Marc Sanders
T. +31 20 435 6400

Also published on Thomson Reuters' Taxnet Pro, 24 February 2014

Taxand's Take

The majority of structures implemented should not be affected by these new requirements as it was already common practice to apply these substance requirements. Older structures or structures which have not been maintained properly should however be reviewed to determine whether they meet the current requirements. 

The current substance requirements provide certainty for companies on which requirements need to be met and should provide comfort that foreign tax administrations will be hesitant to attack any structures which meet these requirements. The Netherlands is therefore at the forefront again in adapting to changing circumstances and developing a transparent tax system which meets the current international climate. Multinationals can therefore still benefit from the various tax advantages of the Netherlands such as the participation exemption, the lack of withholding tax on interest, royalties (and effectively on dividends) without the reputational and tax exposures of structuring through a less transparent location. 

Taxand's Take Author

Marc Sanders
Taxand Board member

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