In light of ongoing international tax developments, the Dutch government has indicated that it would like to combat abusive structures that are mainly used for tax avoidance reasons and lack economic substance. On the other hand, the Dutch government is willing to improve the investment climate for active business structures that have sufficient economic substance. The proposals in the letter are in line with these intentions. The letter will be followed by the introduction of a Bill in Parliament, and it is intended that the changes will become effective from, at the latest, 1 January 2018.
Holding cooperatives become subject to the Dutch dividend withholding tax
Dutch cooperatives have been used a lot in international structures; they are typically involved with the holding of shares, asset investments and the financing of related entities. Holding cooperatives often have a limited number of members. The government has proposed introducing a withholding obligation if a member has an interest of 5% or more in these (international) holding cooperatives. For dividend withholding tax purposes, a cooperative will in these cases be treated as a company with a share capital by equating its membership rights with shares. This development, in combination with the proposed changes to the withholding exemption, means that private limited liability companies (BV) and public limited companies (NV) on the one hand, and holding cooperatives on the other, will be treated the same way for dividend withholding tax purposes. In active business structures where there is no abuse, a dividend withholding exemption for cooperatives will continue to apply.
Extension of the Dutch dividend withholding tax exemption to treaty situations
For a long time now, the Netherlands has advocated the exemption of dividend withholding tax on dividends distributed to corporate shareholders that own 5% or more (“participation dividend”). In that context, the Dutch government is considering that it would be appropriate to extend the current withholding exemption for participation dividends under the Parent Subsidiary Directive (i.e. for parent companies within the EU/EEA with an interest of 5% or more) to parent companies established in countries with which the Netherlands has concluded a double tax treaty. Consequently, the exemption from dividend withholding tax will be extended to the US, Canada, China, India and Brazil. To prevent facilitating untaxed routing of dividends from the Netherlands to non-treaty countries, including tax havens, the legislation will provide for rules to combat improper use.
In general terms, it is expected that the Dutch investment climate will improve with this proposal. However, the question is whether a ‘grandfathering’ regime will be introduced in the proposed legislation for existing cooperatives that are currently exempt from the Dutch dividend withholding tax. However, as there is no further information available at this stage on such a ‘grandfathering’ regime, it is advisable to look into the options available for the structure in the future.
We will keep you updated on new developments.
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Ivo KUIPERS – Partner of Atlas (email@example.com)
Pieter FROLICHS – Associate of Atlas (firstname.lastname@example.org)
Friday, 28 October 2016
Netherlands: proposals on cooperatives and dividend withholding tax
On the third Tuesday of September 2016, which is traditionally Budget Day in the Netherlands, the Deputy Minister of Finance sent a letter to the Dutch Parliament containing proposed changes to the Dutch Dividend Withholding Tax Act. As was expected by many tax practitioners, so-called holding cooperatives might become subject to Dutch dividend withholding tax. To further improve the Netherlands’ investment climate, the Dutch government, in the same letter, proposed abolishing, under certain conditions, the current dividend withholding tax obligation on dividends distributed to certain corporate shareholders.