Netherlands: Analysing important tax developments in the Netherlands
Roderik Bouwman & Gabriël van Gelder of DLA Piper assess recent developments in Dutch tax law, including the legislative proposal concerning ATAD 2, a letter from the state secretary of finance on recent ECJ judgments and a new policy on a tax ruling relating to cross-border structures.
Over the past few weeks, the Dutch Ministry of Finance published the legislative proposal regarding the Anti-Tax Avoidance Directive (ATAD 2), a letter on the Dutch view of the European Court of Justice (ECJ) cases of February 26 2019 and a new decree on the Dutch tax ruling relating to cross-border structures. In this article, we will elaborate in detail on these important developments.
ECJ – February 26 2019 cases and Dutch impact
On June 14 2019, the Dutch state secretary of finance (the state secretary) published a letter addressing various questions from members of the Dutch Parliament relating to the recent judgments from the European Court of Justice on February 26 2019 – Danish court cases. These cases address the application of the EU principle of abuse of law in the area of direct taxation, pursuant to which, benefits of the Interest and Royalty Directive and the Parent Subsidiary Directive must be denied if there is an abuse of law (this is generally if the structure is artificial and granting the benefits of the directive would not be in line with the object and purpose of the directive). According to the state secretary, the Dutch anti-abuse rules are in line with EU law and the interpretation of the ECJ. However, the current Dutch anti-abuse rules in the Dutch dividend withholding tax (DWHT) and corporate income tax (CIT) law need to be fine-tuned in order to satisfy the most recent ECJ judgments. As a result, the state secretary announced that satisfying the relevant substance requirements, in certain situations, should no longer be a safe harbour for foreign shareholders from January 1 2020. The state secretary announced that on Budget Day (September 17 2019) more guidance will be given.
New ruling policy
On June 28 2019, the state secretary published the final decree (the decree) on the Dutch tax ruling practice pertaining to tax rulings relating to cross-border structures. The decree entered into force on July 1 2019. The decree supports the Dutch government's aim to (i) strengthen tax ruling practice and (ii) continue to issue meaningful rulings to companies with proper substance in the Netherlands. The Dutch tax authorities will only provide tax rulings if the taxpayer requesting a ruling is part of a concern that has or intends to create a so-called 'economic nexus' with the Netherlands, meaning that its presence needs to relate to operational activities in the Netherlands that are carried out for the benefit and at the risk of the taxpayer. These activities need to fit with the function of the taxpayer. A tax ruling will not be provided if:
The sole or primary purpose of the transaction is to save Dutch or foreign taxes; or
The direct transaction relates to an entity or a permanent establishment located in a jurisdiction that has been included on the so-called 'Dutch blacklist' of 21 low-taxed jurisdictions and non-cooperative jurisdictions.
A new committee within the tax authorities (the Committee on International Fiscal Assurance, or C-IFA) will be formed and responsible for central coordination pertaining to international tax rulings. The C-IFA will replace the existing ATR/APA team. The C-IFA will be involved in all international tax ruling requests to (i) safeguard cohesion in policy and implementation, (ii) to ensure high quality and standards of rulings issued, and (iii) to ensure correct application of case law and procedural rules. If a tax ruling will be issued it will, in principle, have a maximum term of five years. In an attempt to increase transparency, for each tax ruling a summary will be made publicly available.
ATAD 2 – legislative proposal
As a result of the adoption of ATAD 2 on May 29 2017, EU member states need to implement rules targeting specific hybrid mismatches that need to be in effect from January 1 2020 and rules targeting reverse hybrid entities that need to be in effect from January 1 2022. On July 2 2019, the Dutch Ministry of Finance published the legislative proposal (following the October 2018 public consultation). The anti-hybrid rules, inter alia, require a deduction to be denied on payments made by a Dutch taxpayer to another entity in case of certain hybrid mismatches (e.g. payments made to/by hybrid entities and deductible payments under a hybrid financial instrument). In addition to the implementation of the anti-hybrid rules, the Dutch government announced that for the application of the Netherlands-US tax treaty (NL-US treaty), the so-called 2005 decree that deals with anti-hybrid provision in the NL-US treaty will be withdrawn as of January 1 2020. Consequently, as of January 1 2020, the Netherlands-US tax treaty may no longer reduce or exempt the Dutch dividend withholding tax on distributions to Dutch limited partnerships (CVs) that qualify as a reverse hybrid under the NL-US treaty.
In addition to these developments, the state secretary recently announced other initiatives in the context of international tax developments, like the appointment of a committee of experts focusing on the fair taxation of multinational enterprises. The state secretary repeatedly mentions that it is the aim of the Dutch government to ensure that the Netherlands remains an attractive jurisdiction for investments involving real economic activities. The implementation of the decree supports the Dutch government's aim to prevent abusive situations where taxpayers use the Netherlands as a so-called 'conduit jurisdiction' for directing funds and assets to tax havens.