With this briefing we would like to update you on certain recent Dutch tax developments that may be relevant for your company.

I. Dividend Withholding Tax (“DWT”) Treatment Dutch Coop & BV/NV

In our previous tax updates we informed you about the legislative proposal to abolish the different DWT treatment of Dutch BVs, NVs and Dutch cooperatives (“Coops”).

On 19 December 2017, the legislative proposal was adopted by Dutch Upper House, so that it entered into effect as per 1 January 2018.

For a brief description of new legislation, please be referred to our previous tax update.

II. EU List of Non-Cooperative Jurisdictions

On 5 December 2017, the Council of European Union published an EU list of non-cooperative jurisdictions for tax purposes (the “Publication”).

Mandatory administrative countermeasures in tax area

EU Member States should apply at least one of the following administrative measures to ensure coordinated action towards non-cooperative jurisdictions:

• reinforced monitoring of certain transactions;
• increased audit risks:
• for tax payers benefiting from the regimes at stake; or
• for tax payers using structures or arrangements involving these jurisdictions.

Optional countermeasures in tax area EU Member States may take the following defensive measures in the tax area (such in accordance with their national law):

• Non-deductibility of costs
• Controlled Foreign Company (CFC) rules
• Withholding tax measures
• Limitation of participation exemption
• Switch-over rule
• Reversal of the burden of proof
• Special documentation requirements
• Mandatory disclosure by tax intermediaries of specific tax schemes with respect to cross-border arrangements.

According to the Publication, the list of non-cooperative jurisdictions could be used as a tool in combination with legislation that is to be implement under the EU Anti-Tax Avoidance Directive (ATAD1), for instance in combination with the envisaged earning stripping and the CFC legislation.

On 21 December 2017, the Dutch State Secretary of Finance announced that in February 2018 he will inform the Lower House about the possible Dutch countermeasures, as well as about the Cabinet’s broader efforts to tackle tax avoidance, tax evasion and letter box constructions.

III. MULTILATERAL INSTRUMENT (“MLI”)

On 21 December 2017, the Dutch State Secretary of Finance has submitted a legislative proposal to the Lower House to approve the MLI. The MLI aims to amend all double tax treaties (DTTs) concluded by the Netherlands and the other jurisdictions that signed the MLI.

The MLI contains mandatory provisions (like a minimum general anti-treaty abuse provision) and optional provisions. As a result, the amendments to be made to a specific tax treaty will to a certain extent depend on the MLI positions taken by the respective tax jurisdictions; only to the extent that the positions taken by jurisdictions match, amendments will be made to the respective tax treaty. To date over 71 jurisdictions signed the MLI.is

Almost all jurisdictions that have signed the MLI have agreed to apply a general anti-treaty abuse rule (also referred to as the “Principle Purpose Test” or “PPT”) in the respective tax treaty.

In line with previous rulings, on 20 December 2017, the European Court of Justice(´ECJ´) issued a ground breaking ruling in joined German cases (C-504/16 and C-613/16), which will have a significant impact on the use of anti-abuse rules (and thus the general PPT) within the EU. According to the ECJ, the German anti-abuse legislation is in conflict with (primary and secondary) EU law, as it is too general and does not have the specific objective of targeting wholly artificial arrangements which do not reflect economic reality. This ruling also sheds new light on the presence of substance for EU holding companies. According to the ECJ, neither the tax treatment of the shareholders of the EU parent company, nor the type or composition of economic activities of the EU parent company is relevant for assessing the existence of abuse. Instead a case-by-case analysis must take place of the overall situation at stake considering economic and organizational characteristics and strategy of the whole group.

On 22 November 2017 the Lower House adopted a motion in which the Cabinet was requested to address in its 2018 fiscal policy agenda the use of Dutch substance requirements in order to tackle so called ´letter box´ constructions. The State Secretary of Finance is expected to inform the Lower House in Q1 2018. It will be interesting to learn whether, and if so, in what manner the recent ECJ rulings will impact the Dutch substance requirements.

IV. REVISED DUTCH CORPORATE INCOME TAX RATES

Statutory corporate income tax rate

Currently, the statutory corporate income tax rate is 20% for taxable income up to and including EUR 200,000 (the “First Bracket”), and 25% for the excess. Based on the Tax Plan 2017, the First Bracket was to be extended to:

• EUR 250,000 in 2018;
• EUR 300,000 in 2020; and
• EUR 350,000 in 2021.

However, on 19 December 2017 legislation was adopted, whereby the above extension of the First Bracket was reversed, and will be replaced by a reduction of the corporate income tax rate for both brackets with:

• 1% in 2019;
• an additional 1.5% in 2020, and
• another 1.5% in 2021.

This means that as per 1 January 2021, the corporate income tax rate will have been reduced to 16% for the First Bracket, and to 21% for the excess.

Effective corporate income tax rate innovation box

As per 1 January 2018, the effective tax rate of qualifying “innovation box” income is increased from five per cent to seven per cent.

V. ENVISAGED DRAFT LEGISLATION IN Q-1 2018

Legislative proposal regarding the implementation of ATAD 1

In July 2017, the Dutch State Secretary of Finance published a document for internet consultation (the “Consultation Document”) regarding the envisaged implementation of ATAD1 in domestic tax law. The Consultation Document includes measures regarding earning stripping and controlled foreign companies (CFCs). Please be referred to our previous tax update for a brief description of Consultation Document. The formal legislation is expected to be released in the first quarter of 2018, and is to take effect on 1 January 2019.

Legislative proposal regarding the UBO Register

As mentioned in our previous briefing, in line with the Fourth EU Anti-Money Laundering Directive, a central register including information on Ultimate Beneficial Owners (the “UBO-register”) is being set up in the Netherlands. It is expected that formal legislation implementing the EU Directive will be submitted to the Lower House in the beginning of 2018, with the aim to have the Dutch UBO-register up and running this summer.

VI. POSSIBLE AMENDMENTS TO THE DUTCH FISCAL UNITY REGIME

On 25 October 2017, the Advocate General (“AG”) of the ECJ issued an opinion regarding the compatibility of the Dutch fiscal unity regime with EU law. According to the AG, granting certain (beneficial fiscal unity) elements only in purely domestic situations infringes the EU freedom of establishment. As a result, these (beneficial fiscal unity) elements should also be granted to Dutch parent companies with (non-Dutch) EU resident subsidiaries.

In view of the potential budgetary impact of also granting certain beneficial fiscal unity elements in EU cross boarder situations, on 25 October 2017, the Dutch State Secretary of Finance announced emergency measures. In broad terms, the measures entail that the Dutch fiscal unity is deemed not to exist for the application of certain tax provisions, including certain anti-base erosion provisions. If the ECJ follows the AG’s opinion, the emergency measures will become effective with retrospective effect to 25 October 2017, 11:00 AM.

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Contacts – Van Campen / Liem

For further information, please contact:

Gesina van de Wetering
Attorney at law / Tax Advisor
Partner
[email protected]

Gesina is a leading International Tax and Corporate/M&A lawyer. She started her career as a tax inspector at the Dutch tax administration large enterprises, following which she was an official and assistant to the State Secretary of Finance in the European Taxation Division of the Dutch Ministry of Finance, in which capacity she represented the Netherlands on the first cases on direct taxation at the European Court of Justice.

For many consecutive years now, Global Chambers acknowledges Gesina as a leading individual in the Netherlands in the field of Tax and Corporate/M&A. Her broad international client base consists of major players in the telecoms, transport and energy sector.

As a well-respected lawyer in the commercial sector, Gesina is frequently asked to speak at international seminars, and has participated in various tax expert groups.

 

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Originally published on January 2018 by Gesina van de Wetering.

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