Dutch tax legislation in the field of a general anti-abuse rule ('GAAR') may have an impact on existing corporate structures and Advance Tax Rulings ('ATR's') concluded!

Monday, 6 June 2016

Introduction

The EU Parent Subsidiary Directive (‘EU PSD’) is an important Directive for EU Member States, as it provides a set of rules to exempt dividends and other profit distributions paid by subsidiaries to their parent company from withholding taxes and eliminates double taxation of such income at the level of the parent company. In the Netherlands, the EU PSD is implemented in the Dutch Dividend Withholding Tax Act (‘DWTA’) and the Dutch Corporate Income Tax Act (‘CITA’). It provides for an exemption of dividend withholding taxes, if a Dutch subsidiary pays a dividend to its EU Parent Company. Furthermore, the participation exemption is applicable at the level of a Dutch company for the benefits (i.e. dividends and capital gains) derived from a subsidiary, if certain conditions are met.

At the beginning of 2015, the Council of the European Union amended the EU PSD and included a general anti-abuse rule (‘EU GAAR’), as a common minimum standard (*1). As such, it should prevent misuse of the EU PSD and ensure a greater consistency in its application in different EU Member States. The amendments and inclusion of the EU GAAR implied the following: EU Member States shall not grant the benefits of the EU PSD to an arrangement or a series of arrangements which, has as one of its main purpose or one of the main purposes to obtain a tax advantage. For this purposes, an arrangement or a series of arrangements shall be regarded as not genuine to the extent that they are not put into place for valid commercial reasons, which reflect economic reality.

As a result of the above decision from the Council of the European Union, all EU Member States had to implement such EU GAAR legislation before 31 December 2015 at the latest. For the Netherlands, the ‘new’ anti-abuse rules for foreign corporate shareholders and members in a Dutch company and Dutch cooperative structure (abbreviated: ‘Coop’) were introduced in a law proposal in September 2015 and became effective as of 1 January 2016. These rules are laid down in article 17, paragraph 3, sub b Dutch CITA and for Dutch cooperative structures in article 1, paragraph 7 Dutch DWTA. The effects of these new tax rules has – in our view – been significantly under-estimated. In practice we have come across situations whereby clients did not realize the effects of the above changes. We believe it is time to investigate the impact of this legislation!

Why would this impact me?

If you have concluded an ATR with the Dutch tax authorities that (also) governs the tax position of the foreign shareholders that hold an substantial interest in a Dutch company (*2) (including the position of a Dutch Coop), you may find that such ATR has lost its validity if you have not asked for an agreement on the renewal of the ATR prior to the 1st of April 2016 (*3). Furthermore, your international structures would need to be checked for the possible impact of the new legislation. Note that this is not just within the EU, as the legislation has a wider impact to tackle shareholders with a substantial interest on a global basis. Examples where the new legislation could have a negative effect would be if in your structure a Dutch BV or Coop is held by an intermediary holding without any significant substance or entrepreneurial activity. Also so called CV – BV structures may get scrutinized on the basis of their ownership positions. You may find that, the recipient of benefits received from or through such Dutch entity may find themselves subjected to Dutch corporate income tax (‘CIT’) or Dutch dividend withholding tax, as the case may be, where before this legislation such was arguably not the case. Also please note that similar rules and GAAR implementation may need to be verified for other EU member states.  

What to do? What can we do for you?

Due to the new legislation, it is vital to assess whether the afore-mentioned amendments have an impact in your corporate structure and/or ATR. We would be happy to assist you in order to assess whether these new rules have such an impact and provide you with further advise in your situation and/or obtain a written approval from the Dutch tax authorities.

If you like to obtain more information, we suggest you contact us (by e-mail: k.chan@banning.nl), so that we can provide you with our more detailed client letter on this topic.

John Linders
Kim de Moor

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We, at BANNING, are experienced tax lawyers/advisors and are specialists in the field of corporate income tax as well as international taxation. We are happy to assist you with questions in these areas, but also in other tax areas.

 

 

(*1) Council Directive (EU) 2015/121 of 27 January 2015.

(*2) If the ownership exceeds 5% of the shares.

(*3) Such ATR’s are sometimes referred to as ‘negative permanent establishment rulings’.

Author
J.P. (John) Linders
J.P. (John) Linders Partner International Tax/Transfer Pricing