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Netherlands reviews its ATR and APA practices

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The Netherlands is renewing and revising its practice regarding advance tax rulings (ATRs) and advance pricing agreements (APAs). The Dutch government expects that these renewed Dutch ruling practice shall take effect July 1 2019.

The Dutch House of Representatives is expected to debate the proposals on June 4 2019, which leaves a short time to implement the new ruling practice before July 1 2019.

Here we provide an overview of the renewed Dutch ruling practice. The information in this article is based on recent tax policy documents of the Dutch government (last documents are dated April 23 2019).

Recent developments

On April 23 2019, prior to the House of Representatives' Finance Committee's general consultation on the renewed ruling practice (originally planned for April 24 2019 but moved to June 4 2019), the Dutch State Secretary of Finance's proposals, including a draft decree, was published.

Ruling process

The ruling process that applies to international tax rulings will be coordinated by one centralised team: the Body for International Tax Assurance. This body will replace the APA/ATR team. The body will function as the principal point of contact for all tax rulings within an international context.

Currently, rulings are granted if a number of substance requirements are met. This will change. Instead of meeting substance requirements, the group (of companies) wishing to obtain an APA/ATR must have an economic nexus with the Netherlands, that is the taxpayer must perform operational activities in the Netherlands and have sufficient employees relevant to those operational activities in the Netherlands.

In addition to the economic nexus, no ruling will be granted if it is deemed the taxpayer is:

  • Avoiding Dutch or foreign tax is the sole or main motive for the transaction(s); or

  • The ruling covers direct transactions with entities that are established in jurisdictions that are on the Dutch list of low tax jurisdictions.

Content of tax rulings

The topics that will be handled by the Body for International Tax Assurance include:

  • The application of the participation exemption;

  • The qualification of hybrid financial instruments or hybrid entities in international structures;

  • The application of the controlled foreign company (CFC) rules;

  • The presence or absence of a permanent establishment (PE) in the Netherlands;

  • The presence or absence of a PE in another jurisdiction for a company that is a tax resident of the Netherlands;

  • The application of interest on non-resident taxation rules;

  • The presence of a PE in Bonaire, Sint Eustatius or Saba (the Caribbean Netherlands) for a company that is a tax resident of Aruba, Curacao or Sint Maarten;

  • The application of the Dutch enterprise non-resident taxation rules;

  • The application of the holding cooperative rules for the Dutch dividend withholding tax (WHT);

  • The application of the domestic withholding exemption of the Dutch dividend WHT;

  • The application of the principal purpose test in tax treaties in relation to dividends, interest and royalties;

  • The allocation of assets and/or risks to PEs;

  • The conclusion of an APA;

  • The question of whether companies are associated enterprises in the context of Article 8b of the Dutch Corporate Income Tax Act (CITA); and

  • The question whether an activity qualifies as an inter-company service or whether the activity qualifies as a shareholder activity.

Transparency of the ruling practice

Due to the controversial perception of tax rulings, the Dutch State Secretary of Finance intends to increase transparency of the tax ruling process.

In addition to the exchange tax ruling templates that are already completed and automatically exchanged between EU member states and the APA/ATR team, anonymised summaries of rulings will be published under the new ruling practice.

Key takeaways

The renewal of the Dutch ruling process seeks to raise the standard of Dutch tax rulings (APAs and ATRs) that provide greater advance certainty to cross-border transactions.

Although it may become more difficult to obtain an APA/ATR for companies lacking economic substance in the Netherlands, the Netherlands is still open for business for companies with operational activities in the country.

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