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).
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 to Dutch-source income only. 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 provides 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 base erosion and profit shifting (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, among others, 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’.