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New Dutch ruling and tax treaty policy

The Netherlands remain a pivot for international structuring

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After internal as well external critics, on Friday 30 August 2013 a new policy was announced with respect to international taxation. Although it is announced as measures ‘to tackle international tax avoidance’, it leaves the Dutch attractiveness as pivot in international structures largely intact

“The Netherlands will improve tax transparency and update tax treaties with low-income countries and low middle-income countries. Tax treaties with Zambia and 22 other poor countries will be revised to allow the incorporation of anti-abuse clauses where necessary.” This was announced by Mrs. Ploumen, Minister for Foreign Trade and Development Cooperation and Mr. Weekers, State Secretary for Finance.

General measures

1. “The substantial activity requirements (companies must run genuine risks in the Netherlands and the actual management of the company must be conducted in the Netherlands) will apply to more companies.” These requirements are not severe and should in our view be observed anyway in any international structure. In essence, the Dutch company must be managed in the Netherlands.

2. “The Netherlands will inform its treaty partners spontaneously when, in retrospect, a company turns out not to meet the substantial activity requirements. Thanks to this improved information exchange with the source country, that country will be in a position to deny the treaty benefits to a company. Information exchange will also apply to particular financing companies that have obtained advance certainty (tax ruling).” If the substance requirements are observed, this exchange of information will not occur.

3. “The Tax Administration will process requests for a tax ruling (advance certainty) from holding companies (these companies receive dividends from non-residents and pay out dividends to non-residents) only if the group in which they operate has sufficient ties with the Netherlands.” The requirements for the participation exemption are such that in most cases a ruling is in our view not necessary. A ruling is not a formal requirements, it just gives extra comfort.

Specific measures aimed at low-income countries and low middle-income countries

4. “The Netherlands will suggest to Zambia that the treaty, dating from 1977, be renegotiated and that anti-abuse provisions be included in the new treaty. The Netherlands will also approach the other low income countries and low middle-income countries to see if they wish to add anti-abuse clauses to the existing treaties. In concluding new treaties, what anti-abuse clauses they could incorporate will be given careful consideration in close consultation with the partner countries.” Only a small part of our international structures depend on tax treaties with low-income countries and low middle-income countries.

5. “The Netherlands provides technical assistance to strengthen tax administrations in low-income countries and low-middle income countries so that they can collect more tax revenues, reduce the number of unnecessary tax exemptions and combat tax evasion and tax avoidance. This support will be expanded wherever possible. If necessary, the government will release extra funds for this purpose.”

The unilateral measures are only in the field of the modus operandi of the Dutch tax authorities. The Dutch tax legislation remains unchanged. So, important features such as the participation exemption, the informal capital concept, the treatment of hybrid entities and instruments and the absence of with holding tax on interest and royalties remain as they are. So, all together the Dutch government has come forward to the critics, but does not really want to change the Dutch international tax law.

For further information:

f.snel@snel-ctl.com; or
http://www.government.nl/ministries/fin/news/2013/08/30/dutch-government-to-tackle-international-taxavoidance.html