In the Netherlands, corporate residence is determined by each corporation’s facts and circumstances. Management and control are important factors in this respect. Companies incorporated under Dutch law are deemed to be residents of the Netherlands (although not with respect to certain provisions, such as the participation exemption and fiscal unity).
The Dutch Corporate Income Tax Act and Dividend Withholding Tax Act contain several anti-abuse provisions that aim to counter artificial arrangements. In these cases the taxpayer can prove that the arrangement is not artificial if it meets certain relevant substance requirements. Before 2020, these substance requirements served as “safe harbour rules”. Yet, following the ECJ’s Danish Beneficial Ownership cases (refer to “Significant developments”) as from 1 January 2020, these substance requirements no longer serve as safe harbour rules. The relevant substance requirements now serve as an indication that the arrangement is not artificial, leaving room for other facts and circumstances to play a role in determining whether or not there is abuse. There are similar regulations in the Conditional Source Taxation Act which is to be introduced per 2021.
Permanent establishment (PE)
Non-resident companies that are neither incorporated nor effectively managed in the Netherlands are limited in their liability to tax in the Netherlands if they receive Dutch-source income. This could be, for instance, business income derived from a Dutch PE or permanent representative. The definition of a PE for Dutch tax purposes is largely inspired by the OECD Model Convention definition and commentary.
The concept of a PE is also of relevance for resident corporate taxpayers. The Netherlands provide international double taxation relief, amongst others, with respect to income attributable to business activities carried on through a PE abroad.
The outcomes of the OECD/G20’s BEPS project may influence the definition of a PE to be included in new or newly renegotiated Dutch tax treaties. The Netherlands has announced that the outcomes of the final report on Action 7 (‘Preventing the Artificial Avoidance of Permanent Establishment Status’) have now become part of the Netherlands’ tax treaty policy. In addition, the Netherlands has signed the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (Multilateral Instrument or MLI) to implement the tax treaty related outcomes of, amongst other, BEPS Action 7. With respect to the MLI provisions relating to the definition of PE, the Netherlands has made some reservations and notifications at the time of the signature. Those relate to the MLI provision on the ‘Artificial Avoidance of Permanent Establishment Status through Commissionaire Arrangements and Similar Strategies’, the MLI provision on the ‘Artificial Avoidance of Permanent Establishment Status through the Specific Activity Exemptions’, and the MLI provision on the ‘Splitting-up of Contracts’.