New Netherlands agreement could open tax planning opportunities

The agreement will introduce a 0% dividend withholding tax rate on distributions of profits. At present, the lowest dividend withholding tax rate available is 8.3%, but the zero rate will apply to dividends paid to certain active parent companies if they satisfy a limitation of benefits (LOB) clause.

“The dividend withholding tax rate on dividends paid to parent companies that will not qualify under the LOB provision will be 15%,” said Marc Sanders of Taxand Netherlands. “However, this rate will be reduced to 5% up to and including 2019 for distributions by companies to their parent companies which hold a minimum interest of 25%. Furthermore, the Netherlands has confirmed that a frequently used structure to eliminate dividend withholding tax between the Netherlands and Curacao through the use of a Dutch Coop will be respected until at least the end of 2014.”

While the 0% dividend withholding tax rate could bring about the birth of new tax planning schemes, Sanders points out that the LOB provision to be contained in the agreement is likely to limit those opportunities.

“Curacao was old-school planning in the 1980s and 1990s with a lot of structures through it. The new agreement may resurrect part of that but anti-abuse clauses are included,” said Sanders. “So the new agreement will probably not result in a major resurgence of Curacao as a tax planning location but will certainly offer new opportunities.”

The agreement – which will also see the countries engage in automatic information exchange – is subject to parliamentary procedures in both countries and is expected to become effective from January 1 2015.