A glimpse of the future? asks Miles Dean (Milestone International Tax Partners).
The past
The Dutch aren’t big on withholding taxes (WHTs), even less than the UK. There’s no WHT on royalties and WHT on interest is limited to loans that work like equity (so the interest is a proxy for dividends). However, unlike the UK there is WHT on dividends. The Dutch dividend WHT is set at 15% which is reduced or eliminated by an applicable double tax treaty or the Parent Subsidiary Directive.
The present
From 1 January 2018 the Dutch have provisionally altered their WHT rules. On the one hand they have extended WHT to dividends paid by Dutch holding cooperatives (70% or more of their activity is holding connected entities or providing financing to them) to bring them into line with Dutch holding companies, but on the other hand they have extended the WHT exemption to qualifying shareholdings in non-EU companies.
The way the extension is being introduced is in line with the implementation of the OECD BEPS report 6 on stopping abuse of tax treaties. The new Dutch provision does this by applying two tests. The first is whether the company receiving the dividend is holding the Dutch shares in order to take advantage of the WHT exemption. A company will pass this test if it is resident in the EU/EEA (possibly relevant to the UK), or a territory with which the Netherlands has a double taxation treaty.
The second test is passed if the recipient is a company based outside the Netherlands that acts as a link between the paying company and the top holding company (i.e. an intermediate holding company) – and it has sufficient substance. This means it must:
incur employment costs of at least €100,000 in respect of its holding company functions;
have its own office space for 24 months to carry out its duties as an intermediate holding company;
at least 50% of its managers must be resident in the territory where the intermediate company is located;
the managers must be sufficiently experienced to carry out their duties;
other personnel within the company are also sufficiently experienced to carry out their duties, and there are enough of them to do so;
Board decisions of the company are taken in the territory where it is resident;
the intermediate holding company’s bank accounts are in its territory of residence;
the intermediate holding company keeps its accounting function in its territory of residence.
Clearly the aim is to put ‘brass plates’ to bed and avoid the claim that the Netherlands is a tax haven and/or facilitating abusive practices.
The future
The coalition agreement for the new Dutch government proposes that, apart from the sort of anti-avoidance rule mentioned above, WHT on dividends will be abolished by 2020. Whilst the above changes are in force as of 1 January 2018, they are only provisional and subject to the final agreement of the Dutch Parliament.
In addition, it is also likely that a royalty WHT will be introduced in due course. Although no proposals have been put forward yet, a safe bet would be something very similar to the anti-avoidance dividend WHT rule already outlined.
As an aside, the Dutch, being competitive creatures, clearly have one eye on the UK. The abolition of the dividend WHT will remove one of the advantages the UK has as a company location over the Netherlands (we wonder whether this is aimed at trying to persuade Unilever to become a wholly Dutch company after Brexit!). Furthermore, the coalition agreement signals a reduction in Dutch corporate income tax to 21% by 2021. Another challenge to the UK?
A glimpse of the future? asks Miles Dean (Milestone International Tax Partners).
The past
The Dutch aren’t big on withholding taxes (WHTs), even less than the UK. There’s no WHT on royalties and WHT on interest is limited to loans that work like equity (so the interest is a proxy for dividends). However, unlike the UK there is WHT on dividends. The Dutch dividend WHT is set at 15% which is reduced or eliminated by an applicable double tax treaty or the Parent Subsidiary Directive.
The present
From 1 January 2018 the Dutch have provisionally altered their WHT rules. On the one hand they have extended WHT to dividends paid by Dutch holding cooperatives (70% or more of their activity is holding connected entities or providing financing to them) to bring them into line with Dutch holding companies, but on the other hand they have extended the WHT exemption to qualifying shareholdings in non-EU companies.
The way the extension is being introduced is in line with the implementation of the OECD BEPS report 6 on stopping abuse of tax treaties. The new Dutch provision does this by applying two tests. The first is whether the company receiving the dividend is holding the Dutch shares in order to take advantage of the WHT exemption. A company will pass this test if it is resident in the EU/EEA (possibly relevant to the UK), or a territory with which the Netherlands has a double taxation treaty.
The second test is passed if the recipient is a company based outside the Netherlands that acts as a link between the paying company and the top holding company (i.e. an intermediate holding company) – and it has sufficient substance. This means it must:
incur employment costs of at least €100,000 in respect of its holding company functions;
have its own office space for 24 months to carry out its duties as an intermediate holding company;
at least 50% of its managers must be resident in the territory where the intermediate company is located;
the managers must be sufficiently experienced to carry out their duties;
other personnel within the company are also sufficiently experienced to carry out their duties, and there are enough of them to do so;
Board decisions of the company are taken in the territory where it is resident;
the intermediate holding company’s bank accounts are in its territory of residence;
the intermediate holding company keeps its accounting function in its territory of residence.
Clearly the aim is to put ‘brass plates’ to bed and avoid the claim that the Netherlands is a tax haven and/or facilitating abusive practices.
The future
The coalition agreement for the new Dutch government proposes that, apart from the sort of anti-avoidance rule mentioned above, WHT on dividends will be abolished by 2020. Whilst the above changes are in force as of 1 January 2018, they are only provisional and subject to the final agreement of the Dutch Parliament.
In addition, it is also likely that a royalty WHT will be introduced in due course. Although no proposals have been put forward yet, a safe bet would be something very similar to the anti-avoidance dividend WHT rule already outlined.
As an aside, the Dutch, being competitive creatures, clearly have one eye on the UK. The abolition of the dividend WHT will remove one of the advantages the UK has as a company location over the Netherlands (we wonder whether this is aimed at trying to persuade Unilever to become a wholly Dutch company after Brexit!). Furthermore, the coalition agreement signals a reduction in Dutch corporate income tax to 21% by 2021. Another challenge to the UK?
