Netherlands: Summary of 2018 Tax Plan
International investors with a Dutch structure may be impacted by proposals under the 2018 Tax Plan published by the Dutch Ministry of Finance on 25 September 2017, along with the national budget. A number of changes are due to be effective as of 1 January 2018, subject to parliamentary approval and possible amendment.
The 2018 Tax Plan does not include measures to implement the EU Anti-Tax Avoidance Directive (ATAD) which are expected to follow in Q1 2018.
The salient amendments are:
1. Introduction of a new dividend withholding tax obligation for Dutch holding cooperatives
Changes are proposed to bring Dutch cooperatives into the scope of the Dutch dividend withholding tax rules (so that they will be treated in a more similar fashion to the corporate entities NVs and BVs) if the following conditions are both met:
- the cooperative is a "holding cooperative", whereby its actual activities in the year before the profit distribution consisted primarily (for at least 70%) of the holding of participations or the direct or indirect financing of related entities or individuals and
- the members of the cooperative have "qualifying membership rights", namely membership rights that grant an entitlement of at least 5% of the annual profits or at least 5% of the liquidation profits. The membership rights of a member and the entities and individuals related to that member will be taken into account in determining whether there is a qualifying membership right.
The new rules will not apply to non-holding or "real" cooperatives (cooperatives running a business enterprise and/or with a large group of members), which will remain exempt from dividend withholding tax.
2. Expansion of full dividend withholding tax exemption
Changes are proposed to expand the existing dividend withholding tax exemption (which now applies to EU/EEA shareholders) for dividends distributed by Dutch companies to third countries where their non-resident shareholder is an entity that:
- holds an interest of at least 5% in the Dutch company and
- resides (for the purpose of tax treaties) in a jurisdiction that has concluded a tax treaty, including a dividend article, with the Netherlands.
It should be noted that the second condition may also be met by members/shareholders that are hybrid entities, depending on their circumstances, with US LLC structures referenced.
Furthermore, under a new anti-abuse rule, the exemption will not apply if:
- the interest in an entity is held with the principal purpose, or one of the principal purposes, of avoiding dividend withholding tax from being levied and
- the interest in an entity is part of an artificial structure or transaction or series of transactions, which will be the case if there is no valid business reasons.
The substance requirements in force since 1 January 2016 will be expanded with two additional requirements, namely that non-resident shareholders that function as intermediate holding company must, amongst others, have:
- a payroll expense of at least €100,000 related to the intermediate holding activities (which may be recharged) and
- premises at their disposal (for a period of at least 24 months) in the country of establishment from which they actually carry out their intermediate holding activities.
In view of the expected changes, the existing Advance Tax Rulings of Dutch entities will be abolished as of 1 January 2018 and a new one will need to be obtained which respects the new substance requirements. Taxpayers will be provided with a transitional period until 1 April 2018.
3. Change of scope of the non-resident corporate income tax rules for substantial shareholdings in Dutch entities
Under the proposed changes, a non-resident entity will only be taxed on income (capital gains as well as dividends) from such shareholdings if there is an avoidance of the Dutch personal income tax liability of an indirect shareholder of the Dutch entity.
4. Stricter conditions on deducting interest on intercompany debts funded by linking loans from third parties
The Dutch Corporate Income Tax Act currently provides for a limitation of the deductibility of interest on intercompany debt, if such debt is connected with a tainted transaction such as certain acquisitions, dividend distributions or capital contributions. This does not apply if business reasons predominantly underlie (i) the intercompany debt and (ii) the tainted transaction.
Under the proposed changes, and in the light of a Dutch Supreme Court ruling of April 2017, the taxpayer will need to demonstrate that the tainted transaction is predominantly motivated by valid business reasons, even if the intercompany debt is funded by connected third-party loans.
Taxpayers that currently rely on ultimate third-party financing need to show valid business reasons for the tainted transaction as from 1 January 2018, even if the tainted transaction was entered into long before that date, since no grandfathering provisions are proposed.
5. Other measures
- The CIT bracket of 20% shall apply to the first €250,000 of taxable profit
- The repayment of membership contributions by a Dutch cooperative shall be exempt of dividend withholding tax
- A provision that temporarily allows voluntary filing of a country-by-country report (CbCR) or parent surrogate filing by the ultimate parent entity located in a country that has not implemented CbCR on a timely manner for financial years starting on or after 1 January 2016.
The changes proposed, particularly in relation to the expansion of the dividend withholding tax exemption, are likely to reinforce the position of the Netherlands as an attractive and flexible domicile, in the light of the international tax transparency agenda. The full participation exemption and absence of interest and royalty withholding tax are other key factors which underpin the favourable Dutch tax regime
by Renaud Oury
Group Sales & Marketing Director, SGG Group
SGG Group is a global leader in investor services which include administrative and accounting solutions for investment funds, multinational corporations and family offices. The Company has over 840 employees and offers a comprehensive range of value-added services to customers across more than 25 countries.
SGG has a strong presence in Netherlands and is well placed to advise clients on the implications of the changes ahead to their existing structures.