Up to 2020, a grandfathering rule applies under the TANC for existing structures in which the parent company owns at least 25% of the shares in the Dutch company and is the beneficial owner of the dividends, following which the dividend withholding tax rate will be reduced to 5% (now 8.3%).
(a) 0% dividend withholding tax rate
As of January 1 2016 the dividend withholding tax rate can be reduced to 0% on dividend payments made by Dutch companies to the following shareholders:
i. Pension funds
ii. Public entities
iii. Qualifying entities that hold a shareholding of at least 10% in the paying entity
Qualifying entities are:
a. Listed entities or entities that are for at least 50% owned by listed entities*
b. The headquarter of a multinational group*
c. An entity that employs 3 full time employees*
d. A company which is immediately held for at least 50% by individuals (residents of Curacao)*
* additional conditions apply
A company that does not meet one of the requirements as mentioned above under a to d can still benefit from the 0% rate under the safe harbour provision. The shareholder should hold a shareholding of at least 10% in the paying entity and qualify as the beneficial owner. This provision applies to the following two situations:
1. The Curacao shareholder conducts operational activities and receives the dividend in line with those activities*; or
2. The competent authority of the source state determines upon request that obtaining the 0% rate on dividends was not one of the main purposes of incorporating, acquiring or maintaining the parent company. In the explanatory notes to the legislative proposal for the TANC it was indicated that this request will be granted if (i) the shareholding can be allocated to the business activities of the shareholder and (ii) the company meets the minimum substance requirements, as published by the Dutch Ministry of Finance
The Dutch Tax Authorities (APA/ATR Team) will process these requests regarding dividend distributions from the Netherlands. It is expected that the shareholding can be allocated to the business activities if the (indirect) shareholder of the Curacao entity and the subsidiaries perform operational business activities, whereby the Curacao company functions as a link between the entities. Although not yet confirmed, it is furthermore expected that the request will be granted if, inter alia, the Curacao shareholder employs personnel and consequently bears a minimum amount of wages and has an office space at its disposal. The background of this is to develop more economic activity in Curacao. Limited debate in Dutch Parliament took place however prior to the acceptance of the proposal by the Parliament and we expect that further clarification should be provided by the APA/ATR Team.
General anti-abuse rule
The TANC includes a general anti-abuse rule (“GAAR”) following which anti-abuse rules in national tax law will not be limited under the TANC. Under Dutch tax law, this mainly regards the so called “substantial interest rules” for corporate income tax payers who hold a 5% shareholding in a Dutch company in an artificial structure. Under the substantial interest rules, the shareholder becomes subject to 25% corporate income tax for the income derived from this shareholding. The TANC furthermore stipulates however that should the shareholder be entitled to the 0% dividend withholding tax rate under the TANC, the substantial interest rules do not apply. Also, under the grandfathering rule, the substantial interest rules will not apply up to 2019.
Dutch tax law furthermore includes anti-abuse rule regarding the dividend withholding tax position of a Dutch Coop in artificial structures. Dividend distributions by a Coop are not subject to the 15% Dutch dividend withholding tax, unless the Coop is held with the main purpose of tax avoidance and it concerns an artificial structure. No grandfathering rule applies to these rules under the TANC.
Other amendments under the TANC
The new agreement will probably not result in a major resurgence of Curacao as a tax planning location but may offer new opportunities. Companies with sufficient activities/substance in Curacao benefit from the 0% dividend withholding tax rate. Curacao does not levy any withholding taxes on dividend and may offer a low tax regime. Considering the proximity of Curacao to Latin America this may be especially attractive for multinationals in that region which are willing to invest in sufficient substance in Curacao and want to invest in or through the Netherlands.
The TANC will enter into force simultaneously with the 2016 Tax Plan in January 2016, which includes amendments to the participation exemption regime in case of hybrid mismatches, anti-abuse regulations for non-Dutch corporate shareholders and the dividend withholding tax position of cooperatives (Coop).