The corporate tax system of the Netherlands contains a number of well-known features providing for an attractive investment climate, such as: the fiscal unity regime with tax consolidation for group companies, a full participation exemption for capital gains and dividends from qualifying participations, and several favourable tax regimes (e.g. for patent income, investment vehicles, and income from ocean shipping activities). There is currently no withholding taxation on interest or royalty payments made by the taxpayer.
2019 Dutch Tax Package
On 18 September 2018 (Budget Day), the Dutch Ministry of Finance published the 2019 Dutch Tax Package. Changes include the gradual lowering of the corporate income tax (CIT) rates and the limitation of loss carry forward from nine to six years. It also includes the abolishing of the specific limitations on loss utilisation for holding/finance companies and the abolishing of the interest limitation rules regarding excessive participation debts and excessive acquisition debts as per 1 January 2019. The proposal to abolish the dividend withholding tax (WHT) and replace it with a WHT on dividends in cases of misuse was withdrawn shortly after publication.
An important part of the 2019 Tax Package is the implementation of the European Union Anti-Tax Avoidance Directive (EU ATAD I) into national law. To implement the ATAD I provisions, the Netherlands, as per 1 January 2019, will adopt a controlled foreign company (CFC) rule, an earnings stripping rule, and slightly reform its exit taxation rules for CIT purposes. The CFC regime aims to target corporate taxpayers that hold a direct or indirect interest, either standalone or with affiliated companies, of more than 50% in a subsidiary or disposes of a permanent establishment (PE) in either a low-taxed (i.e. less than 9%) or a non-cooperative jurisdiction that is explicitly listed by the Dutch Ministry of Finance. The ATAD’s general anti-abuse rule (GAAR) is not implemented as such, since, according to the Ministry of Finance, the GAAR is already effectively present by means of the standing Dutch fraus legis doctrine. The new earnings stripping rule limits the deduction of the on balance interest cost to 30% of the taxpayer’s earnings before interest, tax, depreciation, and amortisation (EBITDA), with a threshold of 1 million euros (EUR) and a carryforward rule. The exit taxation regime for CIT purposes is slightly altered, by, in line with the ATAD, providing that an exit levy must be paid in full within the five years following the exit but no later than the moment of realisation, e.g. the sale of the asset(s).
On 2 July 2019, the legislative proposal to implement EU directive 'ATAD II' (concerning hybrid mismatches and non-EU countries) was submitted to the Dutch parliament. It must be first approved by the parliament and then by the Senate, which is expected to take place in the autumn of 2019. The legislative proposal largely follows the EU directive but is stricter in some instances, e.g. taxpayers must document applicability on the measure for payments, losses, etc. and the Netherlands does not make use of the possibility to delay measures in relation to financial institutions, nor does CFC inclusion always qualify as sufficient inclusion. Along with the EU directive, the Dutch ATAD II legislation shall be implemented and enter into force from 1 January 2020. The tax liability measure (for 'reverse hybrids') is to apply from 1 January 2022.
Beneficial ownership and substance requirements
On 14 June 2019, the Dutch State Secretary for Finance answered questions on the impact of the Court of Justice of the European Union (CJEU) judgements in the Danish Beneficial Owner cases (C-115/16, C-116/16, C-117/16, C118/16, C119/16, C-299/16). The State Secretary considers that the current Dutch anti-abuse provisions are broadly in line with the CJEU judgements. However, it cannot be ruled out that in a situation where the Dutch substance requirements are met, there can nevertheless be abuse within the meaning of the CJEU judgements. As a result, amendments to the existing anti-abuse provisions of the corporate income and dividend WHT laws will be proposed; these proposals will be included in the already announced bill for the introduction of a conditional WHT on interest and royalty payments to low-tax jurisdictions and abusive situations that will be submitted on the Budget Day 2019 (17 September 2019).
As a result of these proposals, the role of the current substance requirements will change as of 1 January 2020. The objective of the announced amendments to the anti-abuse provisions in the corporate income and dividend WHT laws is that, even in situations where the Dutch substance requirements are met, the Dutch Tax Authorities, unlike now, will be able to tackle abuse more effectively. The proposals will not only apply in relation to EU member states, but also to third states (e.g. the State Secretary in this context mentions Singapore). The Dutch substance requirements are therefore no longer considered to be a 'safe harbour' for beneficial ownership.
Mandatory disclosure (DAC6)
On 13 March 2018, the EU directive 'DAC6' (Mandatory Disclosure) was approved. The Dutch government published its proposed implementation legislation in the form of a consultation document on 19 December 2018. DAC6 require tax advisers, intermediaries, and in some cases taxpayers to exchange information with the tax authorities on certain structures. The aim is to counter aggressive tax planning, although non-aggressive structures may be impacted as well, as long as there is some connection to the European Union. Transactions as of 25 June 2018 fall within the scope of the reporting obligation. The first reporting will be due by 31 August 2020, including the reportable arrangements advised and/or implemented between 25 June 2018 and 1 July 2020.
2018 Dutch Tax Package
As of 1 January 2018, most proposals of the 2018 Dutch Tax Package have become applicable to financial years starting on or after that date. As a result, a foreign entity holding a substantial interest in a company domiciled in the Netherlands may only be treated as a non-resident company subject to (Dutch) CIT if one of its main purposes is to help another to avoid personal income taxation. Before 2018, such tax liability also existed if one of the main purposes was to help another to avoid dividend WHT. The 2018 Tax Package introduced a dividend WHT obligation for holding cooperatives domiciled in the Netherlands in so far as there are 'qualifying membership rights', which entitle the holder to at least 5% of the annual profits or liquidation proceeds, in that cooperative. Additionally, it broadened the dividend WHT exemption in participation situations within the European Union (EU)/European Economic Area (EEA) by making it available to situations of third countries that have entered into a tax treaty or similar arrangement with the Netherlands, provided that the treaty or arrangement contains a dividend article. Note, however, that there are some additional tax treaty domicile requirements that must be complied with.
Emergency measures fiscal unity regime
On 22 February 2018, the CJEU issued its judgement in the joined cases C-398/16 and C-399/16 on the consequences of EU law for the Dutch fiscal unity regime. It ruled the ‘per element approach’ applicable to the Dutch regime. In reaction to the ECJ’s decision, the Dutch Ministry of Finance announced its intention to amend several provisions of the Corporate Income Tax Act (CITA) and Dividend Withholding Tax Act (DWTA) with retroactive effect to 25 October 2017, the date of the Advocate General (A-G) Campos Sanchéz-Bordona’s Opinion in those cases. Despite the presence of a Dutch fiscal unity, the amended provisions will apply as if there was no fiscal unity. The amendments include the application of the rules on ‘the deduction of interest on loans that are directly or indirectly granted by a group company in order to finance an acquisition or capital contribution deduction’ and on the ‘deduction of excess interest on debts that are deemed to be related to the financing of participations’ as if there is no fiscal unity. The same holds true for elements of the participation exemption with respect to the portfolio investment participations and the ‘anti-mismatch’ rule, as well as for the limitation of the utilisation of losses after a change of 30% or more of the ultimate control in a company and the effective reduction of dividend WHT payments in case of certain re-distributions of dividend. The Dutch Senate approved the legislative proposal on 23 April 2019. The changes are given retroactive effect to 1 January 2018.
The Netherlands pursues an active tax treaty policy in order to maintain and extend its wide tax treaty network. Most Dutch bilateral tax treaties are based on the Organisation for Economic Co-operation and Development (OECD) Model Tax Convention. The Netherlands has concluded bilateral tax treaties for the avoidance of double taxation on income and capital (DTCs) with over 90 countries worldwide. Per 1 July 2019, the multilateral instrument (MLI) enters into force for the Netherlands. This means that the earliest date it may have effect is 1 January 2020.