The Netherlands: Tax

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This country-specific Q&A provides an overview to tax laws and regulations that may occur in The Netherlands.

It will cover witholding tax, transfer pricing, the OECD model, GAAR, tax disputes and an overview of the jurisdictional regulatory authorities.

This Q&A is part of the global guide to Tax. For a full list of jurisdictional Q&As visit http://www.inhouselawyer.co.uk/index.php/practice-areas/tax-3rd-edition/

This Q&A is closed on 15 October 2018. This means that later developments have not been included in this Q&A.

  1. How often is tax law amended and what are the processes for such amendments?

    The Dutch tax laws are amended regularly. The frequency depends on the priorities of the government. The government publishes law proposals in any case every year on Dutch budget day (in September). Proposed tax law amendments may be subject to a public internet consultation, before sending the proposed tax bills to the House of Representatives.

    The Ministry of Finance sends the proposed tax bills to the House of Representatives (Second Chamber). The House of Representatives has the right of amendment and can thus make changes to proposed legislation. After the House of Representatives approves the proposed tax bills, the proposal is sent to the Senate (First Chamber). The Senate does not have the right to amend, it can only approve or reject the proposed tax bills. During the parliamentary process stakeholders like the Dutch Order of Tax Advisors (NOB), Employers Organizations and the Labour Unions may provide input. The (written) discussions in both Chambers of Dutch parliament typically provide further guidance on the purpose and interpretation of the proposed legislation.

    After approval of the House of Representatives and the Senate, the bill will be signed into law by the King and published in the state Gazette. Generally, new Dutch tax legislation enters into force as of 1 January, although this can be deviated from.

  2. What are the principal procedural obligations of a taxpayer, that is, the maintenance of records over what period and how regularly must it file a return or accounts?

    Financial Statements

    A Dutch company must keep its books and records for a period of seven years. A company can decide to keep its records not in euros but in its functional currency.

    If the book year is equal to the calendar year, the annual accounts need to be prepared and signed by the board before June the following year. This period can be extended for a maximum of five months by a resolution of the general meeting on grounds of special circumstances. Within two months after the lapse of the (if applicable: extended) period during which the annual accounts are to be prepared, the annual accounts should be submitted to the general meeting of shareholders for approval. In the event that the annual accounts need to be audited (which depends on the size of the enterprise of the company), the general meeting of shareholders may only approve the annual accounts if the annual accounts have been audited. The annual accounts must be published within 8 days after their approval by filing them with the Dutch Chamber of Commerce.

    Corporate income tax returns

    If the book year is equal to the calendar year, the corporate income tax (CIT) return needs to be filed within five months after the end of the book year.

    If the CIT return is being filed by a professional tax adviser a filing extension can be obtained for a period of 11 months. In that situation, the CIT return of the financial year 2018, needs to be filled before May 2020.

  3. Who are the key regulatory authorities? How easy is it to deal with them and how long does it take to resolve standard issues?

    The tax system is administrated by the Dutch tax authorities (DTA). The DTA is part of the Dutch Ministry of Finance. The DTA is generally well approachable and can provide taxpayers advance certainty on the tax treatment of certain transactions.

    The DTA may agree to enter into advance tax rulings (ATR) and advance pricing agreements (APA) within the boundaries of published ruling policy. An ATR and APA can generally be relied upon and will be respected in court, provided all relevant facts have been disclosed. A denial of a request for a ruling cannot be appealed. However, certain statutory provisions in the corporate income tax (CIT) act specifically provide for the possibility of obtaining advance approval and for an accompanying possibility of appealing against a ruling decision on certain specific cases.

    In recent years, the DTA has launched a program under which taxpayers can enter into a so-called covenant under the cooperative compliance regime (horizontaal toezicht). Under a covenant, a taxpayer commits to report tax issues to the DTA upfront in an open and transparent way and to file CIT returns within a specified period of time (usually six months after the end of the taxable year). In return, the DTA commits to respond to these tax issues in a timely manner and to issue final CIT assessments within six months after the filing of the return.

    For day-to-day tax matters, the DTA can be contacted through a call center. More complex matters will be forwarded to the local tax inspector for further analysis.

  4. Are tax disputes capable of adjudication by a court, tribunal or body independent of the tax authority, and how long should a taxpayer expect such proceedings to take?

    Objections against tax assessments need to be filed within six weeks after the date of the assessment. If the Dutch tax authorities (DTA) deny the objection, the denial can be appealed with the Lower Court.

    There are no courts in the Netherlands dedicated to tax matters only. Tax disputes are in first instance dealt with by the Lower Courts (Rechtbanken). Subsequently, Lower Court decisions may be appealed to one of the four Courts of Appeal (Gerechtshoven), where the special tax section handles the tax disputes. Further appeal can be filed with the Supreme Court (Hoge Raad), which has specific judges dealing with tax disputes. The Supreme Court does not deal with factual matters, but only with the interpretation of the law and procedural matters.

    The objection process with the DTA can take a few months. If the taxpayer would continue litigation to the level of the Supreme Court, this can take many years. It is possible to request for postponement of payment of the disputed amount until a decision has been reached. In that case interest will be due against a rate that is equal to the legal interest on commercial transactions, with a minimum of 8% per annum.

  5. Are there set dates for payment of tax, provisionally or in arrears, and what happens with amounts of tax in dispute with the regulatory authority?

    At the start of the fiscal year corporate taxpayers receive in principle a preliminary corporate income tax (CIT) assessment from the Dutch tax authorities (DTA). The amount of this assessment is calculated based on data provided in previous years.

    The amount of tax that needs to be paid based on the preliminary assessments can be paid in monthly instalments. The payment of the amount of tax that is in dispute with the DTA, can be postponed until a final judgement is issued.

    Tax interest will be charged over the period starting six months after the end of the financial year through six weeks after the date of the CIT assessment. The tax interest becomes due on the total outstanding amount of CIT that is due on the basis of the preliminary and the final CIT assessments for that year. The DTA will in general refund tax interest over the amount of a CIT receivable in case a CIT assessment is not issued within eight weeks after filing a request for a CIT assessment or within thirteen weeks after a CIT return has been filed.

    The rate of the tax interest on CIT assessments is equal to the legal interest on commercial transactions, with a minimum of 8%. Interest paid is deductible and interest received is taxable for CIT purposes.

  6. Is taxpayer data recognised as highly confidential and adequately safeguarded against disclosure to third parties, including other parts of the Government?
    Is it a signatory (or does it propose to become a signatory) to the Common Reporting Standard? And/or does it maintain (or intend to maintain) a public Register of beneficial ownership?

    Based on Dutch law, data of taxpayers cannot be disclosed to third parties further than necessary for the collection of taxes. However, the information can be shared with other parts of the Government in the situation of a criminal offence.

    Further, data of taxpayers has to be exchanged by the Dutch tax authorities (DTA) with relevant foreign tax authorities in specific situations. This is the case for certain rulings and for certain so-called Service Companies. In addition, the DTA will exchange information obtained under the EU mandatory disclosure rules. These categories are set out below.

    Exchange of information on rulings

    The Netherlands exchanges information on tax rulings with foreign tax authorities, based on the frameworks laid down by the OECD (BEPS action plan 5) and the EU. The information to be exchanged under both frameworks overlap to a great extent and includes information on the identity of the taxpayer, the date of issuance of the ruling, the start-date, the identification of any entity likely to be affected and a short summary of the content. The DTA have prepared an Excel template for both frameworks and, if completed, contains all information they want to exchange. The DTA gives taxpayers the choice to either complete the template themselves, or let the DTA do so. Under both frameworks the information exchanged will not be available to the public.

    The OECD framework for compulsory exchange of information only applies to taxpayer-specific rulings. The scope of the OECD framework is (further) limited to the following categories of rulings and arrangements:

    (i) rulings related to preferential regimes (for the Netherlands, this category is limited to the innovation box and the shipping regime);

    (ii) cross-border unilateral transfer pricing (TP) or other unilateral transfer pricing rulings;

    (iii) rulings giving a downward adjustment to tax profits (e.g. informal capital rulings, excess profit rulings);

    (iv) permanent establishment (PE) rulings (including absence of PE and the attribution of profits);

    (v) conduit rulings; and

    (vi) any other type of ruling on which it is agreed in the future that it would give rise to BEPS concerns.

    As a general rule, the compulsory exchange of information for the six categories of rulings under the OECD framework needs to take place with:

    (a) The countries of residence of all related parties (25% threshold) with which the taxpayer enters into a transaction covered by the ruling or which gives rise to income from related parties benefiting from a preferential treatment; and

    (b) The residence country of the ultimate parent company and the immediate parent company.

    The EU framework for exchange of information with tax authorities of the Member States applies to ‘advance cross-border rulings’ and ‘advance pricing arrangements’. These terms are very broadly described. An ‘advance cross-border ruling’ is essentially defined as any agreement, communication, or any other instrument or action with similar effects (a) issued by a Member State to a particular person, (b) upon which that person is entitled to rely, (c) concerning the interpretation of tax rules, (d) relating to a cross-border transaction or having a cross-border impact (including the question regarding the presence of a PE in another jurisdiction), and (e) made in advance of the transaction (or the activities potentially creating a PE), or in advance of the filing of a tax return covering the period in which the transaction (or activities) took place.

    An ‘advance pricing arrangement’ means any agreement, communication, or any other instrument or action with similar effects (a) issued by Member State to a particular person, (b) upon which that person is entitled to rely, and (c) determining in advance of cross-border transactions between associated enterprises, an appropriate set of criteria for the determination of the transfer pricing for those transactions or determining the attribution of profits to a PE.

    These broad EU definitions mean that not only advance tax rulings and advance pricing arrangements in the traditional meaning of these terms will be covered by the EU framework, but also a vast array of other agreements between taxpayers and tax administrators. Rulings and pricing arrangements concerning purely domestic situations, as well as rulings and pricing arrangements exclusively concerning the tax affairs of one or more natural persons, are out of scope. Unlike the OECD framework, the scope of the EU initiative is not limited to certain categories of rulings.

    Under the EU framework, the information will be submitted into a central directory to which the tax authorities of all Member States have access. Further, the European Commission (EC) will have access to a limited set of information. The EC is only permitted to use this information for assessing Member States compliance with the EU framework; this means that the information cannot, for example, be used for state aid investigations.

    Exchange of information on so-called Service Companies

    Furthermore, a so called “Service Company” (i.e. a Dutch based company whose activities in a year predominantly consist of receiving and on-paying interest, royalties, rent or lease amounts to and from group companies based outside the Netherlands), that applies or is entitled to apply an EU Directive or tax treaty, but that does not meet certain minimum substance requirements, would be subject to the automatic exchange of certain information by the Netherlands with the relevant foreign tax authorities.

    The Dutch minimum substance requirements are:

    • At least half of the total number of statutory board members and board members with power of decision of the (domestic or foreign) Service Company resides or is actually established in the country of the Service Company.
    • Board members residing or established in the country of the (domestic or foreign) Service Company have the required professional knowledge to properly perform their duties. The duties of the board include in any case the decision-making on transactions to be entered into by the Service Company – on the basis of the own responsibility of the Service Company and within the ordinary course of group involvement – and a proper handling of the transactions entered into.
    • The Service Company avails of qualified employees for proper implementation and registration of the transactions to be entered into by it.
    • The management decisions are taken in the country of the Service Company.
    • The main bank accounts of the Service Company are held in the country of the Service Company.
    • The bookkeeping of the Service Company is conducted in the country of the Service Company.
    • The business address of the Service Company is in the country of the Service Company.

    EU Mandatory Disclosure Directive

    Finally, in 2018, the EU adopted the so-called ‘Mandatory Disclosure Directive’, which imposes the obligation on intermediaries to report to the relevant tax authorities potentially aggressive tax planning arrangements with a cross-border dimension as well as arrangements designed to circumvent reporting requirements like Common Reporting Standard (CRS) and Ultimate Beneficial Owner (UBO). The DTA will exchange such information automatically with the tax authorities within the EU through a centralized database.

    Cross-border arrangements are arrangements concerning either more than one Member State or a Member State and a third (i.e. non-EU) country and meeting certain characteristics. Purely domestic situations and situations having no link to any EU Member State do not fall within the scope of the Mandatory Disclosure Directive.

    Reportable cross-border arrangements are defined in the Mandatory Disclosure Directive as “any cross-border arrangements that contain at least one of the hallmarks as set out in Annex IV” of the Directive. A hallmark is defined as “a characteristic or feature of a cross-border arrangement that presents an indication of a potential risk of tax avoidance”. The hallmarks are divided into generic and specific hallmarks. The so-called generic hallmarks and some of the specific hallmarks only apply if the main benefit test is satisfied. This test is met if it can be established that the main benefit or one of the main benefits which, taking into account all relevant facts and circumstances, a person may reasonably expect to derive from an arrangement is the obtaining of a tax advantage.

    Member States have to implement the Mandatory Disclosure Directive by 31 December 2019 at the latest and shall apply the provisions from 1 July 2020 onwards. It should be noted that the Mandatory Disclosure Directive has retroactive effect for all reportable arrangements the first step of which was implemented in the time frame between 25 June 2018 and 1 July 2020.The deadline to file these arrangements is 31 August 2020.

    The Netherlands is a signatory to the Common Reporting Standards. As of 1 January 2016 the Netherlands has introduced the Common Reporting Standards in Dutch tax law.

    Currently, the Netherlands does not have a UBO-register. All of the EU Member States are obliged to have a UBO-register in place in January 2020 at the latest, based on the 4th European Anti-Money Laundering Directive. The legislative proposal is expected to be submitted to Dutch Parliament in 2019.

  7. What are the tests for residence of the main business structures (including transparent entities)?

    Dutch tax law contains an incorporation fiction. Pursuant to this fiction a company incorporated under the laws of the Netherlands will in principle be considered to be a resident of the Netherlands for Dutch corporate income tax and dividend withholding tax purposes, unless another jurisdiction rightfully claims that the company is tax resident in that other jurisdiction under a tax treaty concluded with the Netherlands.

    However, this Dutch incorporation fiction does not apply for all Dutch tax provisions. For example for the fiscal unity rules, this fiction does not apply. This means that if the place of effective management of the entity (that is part of the Dutch fiscal unity in place) would be outside of the Netherlands, the Dutch tax authorities could unilaterally take the view that the entity is not a resident of the Netherlands. This could lead to the consequence that the fiscal unity would be broken up.

    Similarly, a company not incorporated under the laws of the Netherlands will be a tax resident in the Netherlands for Dutch tax purposes if its place of effective management is located in the Netherlands.

    In the Netherlands a limited partnership, a CV, can either be transparent for Dutch tax purposes (i.e. so-called “closed CV”) or be subject to Dutch corporate income tax and dividend withholding tax to the extent of the interest of the limited partners (i.e. a so-called “open CV”).

    In practice, CVs are generally established in such a manner that they qualify as transparent entities for Dutch tax purposes. In order to accomplish this Dutch tax transparency, it is essential that the admission or replacement of limited partners in the CV is subject to written consent of all partners of the CV.

  8. Have you found the policing of cross border transactions within an international group to be a target of the tax authorities’ attention and in what ways?

    The policing of cross border transactions within an international group are not specifically the target of the Dutch tax authorities’ (DTA) attention.

    However, transactions (supply of goods, services, financing, guarantees, etc.) between related parties have to take place under the same conditions as transactions that would have applied in the market between independent parties, i.e. the at arm’s length standard. In this respect a question needs to be answered in the annual Dutch corporate income tax return to be filed. The DTA regularly checks whether this at arm’s length requirement has been met.

  9. Is there a CFC or Thin Cap regime? Is there a transfer pricing regime and is it possible to obtain an advance pricing agreement?

    Currently, there is no explicit CFC or Thin Cap regime applicable in the Netherlands. Dutch tax law contains one specific clause which requires an annual mark-to-market valuation of subsidiaries held by a Dutch corporate tax payer. This clause applies for a subsidiary in which the shareholder has an interest of 25% or more (stand-alone or together with an affiliated entity), the subsidiary is held as a portfolio investment, and which assets consist directly or indirectly for 90% or more of low-taxed free passive investments. Pursuant to this clause, the annual increase in fair market value (if any) of such subsidiaries must be included in the shareholder’s taxable profits and will be taxed at the general corporate tax rate of 25%.

    The Dutch government published a proposal for a Thin Cap rule for banks. The thin capitalization interest deduction limitation for banks will likely become effective as of 1 January 2020. The legislative proposal is expected to be published in 2019.

    Further, in September 2018 the Dutch government published a proposal for the introduction of CFC Rules as of 1 January 2019, based on the EU Anti-Tax Avoidance Directive. See question 12 for a detailed description of this proposal.

    The Netherlands has a transfer pricing regime following OECD standards and which requires that transactions (supply of goods, services, financing, guarantees, etc.) between related parties take place under the same conditions as transactions that would have applied in the market between independent parties, i.e. the at arm’s length standard.

    The Netherlands is well known for the cooperative attitude of the Dutch tax authorities (DTA) and the opportunity to resolve uncertainties in advance. The Dutch advance tax ruling (ATR) and advance pricing agreement (APA) practice has traditionally been an integral part of the Dutch (international) tax practice. A separate department within the DTA (i.e. the ruling team) is responsible for practically all matters relating to APAs and ATRs.

    ATRs/APAs are not publicly disclosed. However, in certain cases automatic exchange of rulings may take place with respective foreign tax authorities (reference is made to question 6).

  10. Is there a general anti-avoidance rule (GAAR) and, if so, in your experience, how would you describe its application by the tax authority? Eg is the enforcement of the GAAR commonly litigated, is it raised by tax authorities in negotiations only etc?

    The Dutch tax authorities (DTA) may try to challenge a restructuring on the basis of the general Dutch anti-abuse doctrine (Fraus Legis). Fraus Legis does not form part of written legislation, but is formed and dictated by Dutch case law. Fraus Legis applies when:

    i. tax avoidance is the main motive of the taxpayer to enter into a transaction or series of transactions (Motive Test); and

    ii. the tax consequences of the transaction(s) lead to a result that is contrary to the objective and purpose of Dutch tax law (Purpose Test).

    With the application of Fraus Legis, by either eliminating or substituting a legal action to align the arrangement with the objective and purpose of the tax law, a substance over form approach is taken putting the situation created on par with the legal situation that would result in taxes being due as intended by the legislator. So far, the abuse of law doctrine has not been applied extensively by the DTA, respectively the Dutch courts.

  11. Have any of the OECD BEPs recommendations been implemented or are any planned to be implemented and if so, which ones?

    The Netherlands implemented various of the OECD BEPS recommendations and intends to adopt others. Among these is the OECD framework for exchange of information (reference is also made to question 6).

    Multilateral Instrument

    The Netherlands signed the multilateral instrument (MLI). The Dutch Government submitted the ratification bill to parliament on 20 December 2017 and initially aimed to obtain parliamentary approval for the MLI in Q1/Q2 of 2018, with entry into effect at the earliest as of 2019. Parliamentary approval has not yet been obtained. Based on the answers to questions from parliament of 4 July 2018, the government currently expects the MLI to enter into effect for the Netherlands as of 1 January 2020. Based on the (provisional) choices of the Netherlands and its treaty partners, it is expected that more than 50 of the tax treaties concluded by the Netherlands will be affected by the MLI.

    Modified Nexus Approach

    The Dutch IP regime, the so-called ‘innovation box’ regime, provides for the possibility to be effectively taxed at a reduced rate of 7% (instead of the regular corporate income tax rate of currently 20%-25%) with respect to qualifying benefits derived from qualifying intangible assets. Further reference is made to question 19.

    Several aspects of the rules for applying the innovation box regime have changed as of 1 January 2017, in order to bring the regime more in line with Action 5 of the OECD BEPS-project.

    The innovation box applies to benefits (including capital gains) derived from qualifying intangible assets. The benefits derived from the qualifying intangible assets are determined in the most suitable way, taking into account the nature of the business enterprise and the R&D activities that resulted in the qualifying intangible asset.

    In line with OECD BEPS Action 5, the calculated qualifying benefits can be restricted if a substantial part of the R&D activities of the taxpayer has been outsourced to a group company (the 'nexus approach').

    The nexus approach aims to ensure that the taxpayer conducts a sufficient amount of R&D-activities itself.

    Transfer pricing documentation obligations

    In addition to the general transfer pricing documentation obligations contained in Dutch law, a company that forms part of a multinational group may have additional obligations as of 1 January 2016. Multinational groups that meet certain revenue thresholds will be required to: (i) prepare a master file (Master File) and local file (Local File), and (ii) provide a country-by-country (CbC) report. The thresholds in the Netherlands are EUR 50 million of ‘total consolidated group revenue’ in the year preceding the reporting year for the Master File and Local File and EUR 750 million for the CbC report. The Netherlands introduced the Master File, Local File and CbC reporting obligations in line with OECD BEPS Action 13.

    The Master File has to contain a general overview of the business of the multinational group. The Local File has to contain an overview of the transactions between the Dutch entity and the foreign related entities. The Master File and the Local File have to be included in the administration of the taxpayer before the deadline for filing of the corporate income tax (CIT) return. If an extension for filing the CIT return was granted (reference is made to question 2), the term for the including of the Master File and Local File also includes the extension period (i.e. filing the CIT return early does not have an impact on the Local File and Master File deadline).

    The CbC report relates to the providing of certain information items per country in which the multinational group is active (e.g. the amount of the income, realized profit, payed taxes, number of employees). The CbC report has to be filed with the Dutch tax authorities (DTA) within twelve months after the end of the reporting year of the ultimate parent entity of the multinational group. These obligations do not apply when a qualifying foreign ultimate parent entity or surrogate parent entity exists that files the CbC report and the foreign authorities actually exchange this CbC report (on time) with the DTA.

    A penalty of up to EUR 820,000 could be imposed by the DTA if the CbC reporting obligation and / or CbC reporting notification obligation are not met. The maximum fine of EUR 820,000 will only be imposed when the CbC reporting obligations have not been met more than once. Not including the Master File and Local File in the administration within the term, may be punished with: (i) (a) imprisonment of up to four year or a fine of up to € 20,500 (intentionally) or (b) imprisonment of up to six months or a fine of up to € 8,200 (unintentionally), (ii) an administrative fine of up to 100% of the transfer pricing adjustment and (iii) a reversal of the burden of proof.

    EU Anti-Tax Avoidance Directive

    Furthermore, the implementation of the BEPS recommendations within the EU has among others been conducted through the launch of the EU Anti-Tax Avoidance Directive (ATAD).

    In June 2016, the EU Member States reached political agreement on the ATAD1. In May 2017 the EU adopted an ‘upgrade’ of the ATAD by adding provisions to combat hybrid situations with third countries (ATAD2).

    On 18 September 2018, the Dutch Ministry of Finance published the 2019 Budget. The Budget includes proposals for implementation of ATAD1 by introducing an earnings stripping rule to limit interest deductibility and rules for taxation of controlled foreign companies (CFC rules) as of 2019.

    CFC rules

    The Budget includes proposals for implementation of CFC rules as per ATAD1. The Ministry of Finance takes the position that the Dutch at arm’s length principle already provides for a sufficient implementation of ATAD1 “Model B” CFC rules. Based on this principle, the income of a controlled company should already be attributed to the Dutch controlling company to the extent this income is generated by significant people functions performed in the Netherlands.

    Nevertheless, it is proposed to introduce a light version of ATAD1 “Model A” CFC regime specifically geared towards controlled companies in jurisdictions:

    • With a statutory profit tax rate of less than 7%; or
    • That are EU blacklisted.

    Each year before year end the Dutch Ministry of Finance will publish an exhaustive list of jurisdictions that qualify as low taxed or EU blacklisted jurisdictions for the following year. Consultation of the public list has started on 25 September 2018.

    If the Dutch tax payer (indirectly) holds shares in a CFC, the Dutch taxpayer needs to include in its tax base specific types of non-distributed tainted income of the CFC. Tainted income is the net amount of:

    • interest or any other income derived from financial assets;
    • royalties or any other income derived from intellectual property;
    • dividends and income from the disposal of shares;
    • income from financial leasing;
    • income from insurance, banking and other financial activities; and
    • income from invoicing companies that earn sales and services income from goods and services purchased from and sold to associated enterprises, and that add no or little economic value.

    Earnings stripping rule

    The earnings stripping rule that will be introduced pursuant to ATAD 1 will limit interest deductibility without distinguishing between third party and related party debt.

    The Dutch proposal provides that the deduction of net interest expenses is limited to the highest of:

    (i) 30% of the earnings before interest, taxes, depreciation and amortization (EBITDA); and
    (ii) a threshold of Euro 1 million.

    The net interest expenses are defined as the balance of a taxpayer’s interest expenses, including certain related costs and foreign exchange losses, on the one hand, and a taxpayer’s interest income, including foreign exchange gains, on the other hand. EBITDA is calculated on the basis of tax accounts and excludes tax exempt income. Any excess net interest expenses can be carried forward indefinitely. The proposal includes measures that may limit the carry forward in case of a change of control.

    Exit taxation

    The Dutch corporate income tax act already provides for exit taxation in relation to corporate entities and permanent establishments in conformity with EU-law and ATAD1. Therefore, the proposals only include minor adjustments in relation to the deferral of taxation.

    GAAR

    According to the Dutch government, Dutch domestic legislation already provides for a GAAR, by way of the abuse of law-doctrine (fraus legis) as developed in Dutch case law. Therefore, there is no need to implement the GAAR separately in Dutch domestic legislation.

    Hybrid mismatches

    The Dutch implementation in relation to hybrid mismatch rules pursuant to ATAD2 will need to take place by 1 January 2020. This will be addressed in a separate tax bill, to be proposed at a later stage: a consultation document may be published towards the end of 2018.

  12. In your view, how has BEPS impacted on the government’s tax policies?

    The Netherlands has already changed its tax law in accordance with some of the BEPS action points and we expect that the Netherlands will continue to implement these BEPS action points. The BEPS project does have a substantial impact on the government’s tax policies.

  13. Does the tax system broadly follow the recognised OECD Model?
    Does it have taxation of; a) business profits, b) employment income and pensions, c) VAT (or other indirect tax), d) savings income and royalties, e) income from land, f) capital gains, g) stamp and/or capital duties.
    If so, what are the current rates and are they flat or graduated?

    The Dutch tax system is in line with the tax systems of most industrialised countries.

    a) Business profits

    Business profits of corporate taxpayers are subject to corporate income tax (CIT). CIT is in principle levied over the worldwide profits of entities tax resident in the Netherlands. CIT is imposed at a rate of 25%, but a rate of 20% applies for the first EUR 200,000 of profits.

    On 15 October 2018, the Dutch government announced that the main Dutch CIT rate will gradually be reduced to 20.5% in 2021. The rate for 2019 will remain 25% and for 2020 the rate will be reduced, but it is not clear to what percentage. Also the lower Dutch CIT rate will gradually be reduced to 15% in 2021.

    Business profits of individual taxpayers are subject to personal income tax. These are taxed at progressive rates with a maximum rate of 51.95% for net profits exceeding EUR 68.507 (2018). The Dutch government published proposals to reduce the top rate gradually to 49.5% in 2021.

    b) Employment income and pensions

    Employment income and pensions are subject to income tax and social security levies at progressive rates of 36.55% for income up to EUR 20,142, 40.85% for income between EUR 20,142 and EUR 68,507 and 51.95% over the excess (2018 rates and thresholds). The Dutch government published proposals to only have two brackets: income up to EUR 68.507 would be subject to 37.05% tax and the excess to 49.5% tax in 2021.

    c) VAT

    Supply of goods and services are generally subject to VAT at a rate of 21%, while for some goods and services reduced rates of 0% and 6% may apply (2018 rates).

    On 18 September 2018, the Dutch government published a proposal to increase the reduced rate from 6% to 9% as of 1 January 2019.

    d) Taxation of individuals’ savings assets

    Individuals are not subject to personal income tax (PIT) over the actual income derived from their savings assets. These savings assets are deemed to generate a fixed return and this fixed return is taxed against a flat rate of 30%. The percentage of the deemed return is between 2.017% and 5.38% depending on the value of the assets (2018 rates). A tax-free threshold of EUR 30,000 per taxable person applies in 2018. This regime is referred to as “Box 3” taxation.

    e) Income from land

    If the income from land qualifies as active income, individuals will be taxed for the income from land as business profits. If the income from land qualifies as passive income, individuals will be taxed in Box 3 for the income from land as savings income in the manner set out in the above paragraph, i.e. on a deemed fixed return.

    For corporate taxpayers, income from land is taxed in the same way as their business profits.

    f) Capital gains

    For corporate taxpayers capitals gains are taxed in the same way as their business profits. Capital gains (plus other types of income like dividend) derived by a Dutch corporate tax payer from a qualifying participation can be exempt from Dutch tax.

    The participation exemption is a full exemption from Dutch CIT. The participation exemption in practice is fairly straightforward and should normally apply to (groups of) operational companies.

    In summary, the participation exemption is applicable to an interest in a subsidiary if the following conditions are satisfied:

    • The company in which the interest is held (i.e. the subsidiary) has a capital divided into shares;
    • The Dutch shareholder, or an entity related to it, owns at least 5% of the nominal paid-up share capital of the subsidiary; and
    • The subsidiary is not a portfolio investment (based on meeting the “Motive Test”) or is considered a qualifying portfolio investment (based on meeting the "Asset Test" or the "Subject-to-Tax Test"). Please note that only one of these tests has to be met.

    For individuals capital gains can be qualified as:

    - Business profits (see item a. above);

    - Savings income (see item d. above); or

    - Capital gains derived from a substantial interest is taxed a flat rate of currently 25%. A substantial interest is present if the individual (together with his/her spouse) holds 5% or more of the shares of the company. The Budget Day proposals of 18 September 2018 provide that the substantial interest tax rate will be increased to 26.25% as of 2020 and to 26.9% as of 2021.

    g) Stamp and/or capital duties

    The Netherlands levies real estate transfer tax (RETT) on the sale of immovable property as well as of immovable property companies. For residential properties 2% RETT will be levied, for other immovable property 6% RETT will be levied.

  14. Is the charge to business tax levied on, broadly, the revenue profits of a business as computed according to the principles of commercial accountancy?

    The starting point for the tax calculations are the commercial financial statements. For tax purposes adjustments are made, mainly for the deductibility of costs, depreciation of assets and the moment that profits need to be taken into account.

  15. Are different vehicles for carrying on business, such as companies, partnerships, trusts, etc, recognised as taxable entities? What entities are transparent for tax purposes and why are they used?

    The major business entities used in the Netherlands are the Dutch BV (a Dutch incorporated private company with limited liability), the Dutch NV (a Dutch incorporated public company with limited liability) and the Dutch cooperative (Coöperatie).

    Dutch BVs, Dutch NVs and Dutch cooperatives established under Dutch law are in principle treated as tax residents of the Netherlands for Dutch corporate income tax (CIT) and Dutch dividend withholding tax purposes. Furthermore, companies are treated as residents of the Netherlands for Dutch tax purposes if their place of effective management is in the Netherlands.

    In general, companies tax resident in the Netherlands are subject to Dutch CIT on their worldwide income. As opposed to the US, the Netherlands does not have entity classification rules pursuant to which an election could be made to treat Dutch BVs, Dutch NVs and/or Dutch cooperatives differently than as corporations for Dutch tax purposes.

    The Dutch BV and the Dutch NV are entities with legal personality, with a capital divided into shares. Their shareholders are not personally liable for the obligations of the BV/NV, but their liability is limited to the issued share capital. As per 1 October 2012, Dutch corporate law has been amended for a simplification and flexibilization of BV-law. Further the main difference between the Dutch BV and NV is that the shares of the Dutch NV are freely transferable and can be publicly listed.

    The Dutch cooperative is an entity separate from its members, i.e. it has legal personality. The cooperative can take the form of (i) an unlimited cooperative, (ii) a limited cooperative, or (iii) a cooperative with excluded liability. A cooperative can be incorporated by two or more incorporators, who usually (but not necessarily) become the first two members. Its statutory purpose must be to satisfy the needs of its members. Historically, these entities were used in the agricultural sector; however, at present they are commonly used as holding companies to manage Dutch dividend withholding aspects.

    CV

    In the Netherlands a limited partnership, a CV, can either be transparent for Dutch tax purposes (i.e., a so-called closed CV) or be subject to Dutch CIT and dividend withholding tax to the extent of the interest of the limited partners (i.e., a so-called open CV).

    In practice, CVs are generally established in such a manner that they qualify as transparent entities for Dutch tax purposes. In order to accomplish this Dutch tax transparency, it is essential that the admission or replacement of limited partners in the CV is subject to written consent of all partners of the CV.

    Trusts

    Dutch law does not provide for the legal form of a trust. Trusts established according to the laws of a country other than the Netherlands, can be considered transparent or non-transparent for Dutch tax purposes, depending on their specific characteristics.

  16. Is liability to business taxation based upon a concepts of fiscal residence or registration? Is so what are the tests?

    The liability to business taxation is based upon a concept of fiscal residence rather than registration. Further profits derived from a permanent establishment in the Netherlands would also be liable to taxation in the Netherlands.

    Dutch tax law contains an incorporation fiction. Pursuant to this fiction a company incorporated under the laws of the Netherlands will in principle be considered to be a resident of the Netherlands for Dutch corporate income tax and dividend withholding tax purposes, unless another jurisdiction rightfully claims that the company is tax resident in that other jurisdiction under a tax treaty concluded with the Netherlands.

    Foreign entities can be a tax resident of the Netherlands based on the facts and circumstances. If the place of effective management is located in the Netherlands, the Netherlands can claim that the foreign company is a tax resident in the Netherlands, without the need of a registration in the Netherlands.

  17. Are there any special taxation regimes, such as enterprise zones or favourable tax regimes for financial services or co-ordination centres, etc?

    The Netherlands introduced the Fiscal Investment Institution regime (fiscale beleggingsinstelling: FBI) in 1969. An FBI is in principle subject to Dutch Corporate Income Tax (CIT), albeit at a rate of zero per cent (0%). The FBI regime has been incorporated in the Dutch CIT Act as a tax facility.

    The statutory purpose and the actual activities of an FBI must be exclusively restricted to portfolio investing. As such, the FBI is in principle prohibited to be engaged in activities that go beyond that scope. This means that investments must have the objective of realising a return in terms of yield derived from investment and appreciation in value that one may reasonably expect from regular investment management (i.e. investments in shares, bonds and real estate).

    Dutch tax law requires that an FBI distributes all (100%) of its profits to its shareholders within eight months after the end of its financial year.

  18. Are there any particular tax regimes applicable to intellectual property, such as patent box?

    Innovation box

    The Netherlands has an innovation box regime. Income that qualifies for the innovation box is effectively taxed at a reduced rate of 7% (instead of the regular rate, currently being 20%-25%).

    As of 1 January 2017, the innovation box regime has been amended on a number of aspects. The key features of the innovation box regime are as follows:

    • For small and medium-sized taxpayers (SMEs), the intangibles that qualify for the innovation box are self-developed intangible assets from R&D-activities for which so-called 'R&D wage tax certificates' have been obtained.
    • With respect to taxpayers that are not SMEs, a cumulative condition applies for qualifying intangible assets. In addition to having obtained R&D wage tax certificates in respect of these intangible assets, a complementary legal ticket is required.
    • A complementary legal ticket is a self-developed intangible asset:

    a) for which a patent or plant breeder’s right has been obtained or has been applied for;

    b) which qualifies as a software program;

    c) for which an EU marketing authorization for medicinal products is granted;

    d) for which "Octrooicentrum Nederland" has granted a supplementary protection certificate;

    e) for which a registered 'utility model' has been granted;

    f) for which the taxpayer is authorized to sell and use non-chemical pesticides;

    g) which relates to intangible assets qualifying under a) through f); or

    h) for which an exclusive license is granted to use an intangible asset qualifying under a) through e) in a certain way, in a certain geographical area, or for a certain period of time.

    • The innovation box applies to benefits (including capital gains) derived from the qualifying intangible assets.
    • There is no maximum to the amount of profits that can qualify for the reduced effective tax rate. However, the innovation box only applies to the extent that the profits exceed (i) the development costs of the qualifying intangible assets, and (ii) the losses that can be attributed to these assets, which have been deducted at the regular tax rate.
    • The innovation box benefit will, in principle, be limited if a substantial part of the R&D activities is being outsourced to other group entities ('nexus approach').
    • The application of the innovation box is usually discussed upfront with the Dutch tax authorities. The result of the discussions is subsequently laid down in a settlement agreement ('tax ruling').

    R&D wage tax credit

    The R&D wage tax credit is a tax benefit for (employment) costs and expenses which are directly related to Research & Development activities. Companies that have obtained a so-called R&D wage tax certificate (S&O-verklaring), are allowed to pay less wage tax and receive a rebate on part of their employment costs. A R&D wage tax certificate is only granted for specific R&D-activities. The R&D rebate amounts to 32% of the R&D cost base up to € 350,000 (40% for start-ups). To the extent that the R&D cost base exceeds this threshold, the R&D rebate amounts to 16%. The R&D cost base consists of the R&D employment costs and R&D costs and expenses. (rates and thresholds for 2018)

  19. Is fiscal consolidation employed or a recognition of groups of corporates for tax purposes and are there any jurisdictional limitations on what can constitute a group for tax purposes? Is a group contribution system employed or how can losses be relieved across group companies otherwise?

    The Netherlands provides for a tax consolidation regime, known as a ‘fiscal unity’, pursuant to which corporate income tax (CIT) is levied from Dutch group entities on an integrated basis. One of the main advantages of the fiscal unity is horizontal loss compensation (i.e. within one financial year) between the companies included in the fiscal unity. Income generated by profitable companies will be offset by incurred losses from other companies within the fiscal unity, thus reducing the overall taxable profit. Furthermore, a single CIT return is filed on behalf of the entire group, which provides for an administrative relief.

    A parent company must own at least 95% of the shares of a subsidiary (of each class of shares and the shares must represent 95% of the voting and equity interests) in order to form a fiscal unity. Various other detailed requirements must be met to form a fiscal unity (e.g. the same book years, the same legal form, etc.).

    Application of the fiscal unity is optional and requires a prior request. The parent company and respective subsidiaries file a joint written application with the Dutch tax authorities. The application and formation can take place throughout the entire financial year and formation of the fiscal unity can have retroactive effect up to three months prior to filing the application, to the extent that the afore-mentioned requirements were met at that point in time.

    The fiscal unity regime does not have a minimum or maximum term. However, in case of a formation of a fiscal unity and a termination that both take place in the course of the same financial year, the fiscal unity will be disregarded. Upon request, a fiscal unity can be terminated at any future given time during the financial year. If one or more of the enumerated eligibility criteria is not satisfied, the fiscal unity will immediately terminate.

    The fiscal unity constitutes a true consolidation for CIT purposes. Consequently, CIT is levied on all companies on their consolidated taxable profit as if they were a single taxpayer. The fiscal unity has one fiscal balance sheet and one profit and loss account. Each member of the fiscal unity is in principle jointly and individually liable for the CIT liability of the entire fiscal unity. However, CIT assessments for this fiscal unity are only imposed on the parent company.

    Transactions within the fiscal unity are disregarded for CIT purposes. This requires that remunerations with respect to obligations between the fiscal unity companies, such as interest or rent, are eliminated from the fiscal result. Assets can be transferred exempt from CIT within the fiscal unity, although they will become ‘tainted’ so that a tax liability may arise upon termination.

    It is expected that the fiscal unity regime will slightly change with retroactive effect to 1 January 2018.

    On 22 February 2018 the Court of Justice EU (CJEU) confirmed the application of the “per-element approach” and ruled that the Dutch fiscal unity regime infringes the freedom of establishment, as foreign entities cannot make use of this regime. The application of the per-element approach should imply that also foreign entities can make use of specific benefits of the tax consolidation regime.

    However, the Dutch government does not like such explanation of the fiscal unity regime. Hence it announced that several articles in the Dutch CIT act need to be applied as if the Dutch fiscal unity regime does not exist. As a result, some benefits of the current Dutch fiscal unity regime will no longer be available in domestic situations. In that respect the Dutch Ministry of Finance proposed a tax bill to change the Dutch fiscal unity regime in the Dutch CIT act by implementing so-called ‘emergency repair measures’ (Repair Measures). The Repair Measures are aimed to have retroactive effect to 1 January 2018

  20. Are there any withholding taxes?

    The Netherlands currently levies dividend withholding tax (DWT) at a rate of 15%.
    Currently, the Netherlands does not impose withholding tax on payments of royalties or interest. The Netherlands wants to introduce a withholding tax on interest and royalty payments (WHTIR) as of 1 January 2021. The WHTIR will be introduced for interest and royalty payments to low-taxed or EU-black listed countries and in cases of abuse. A tax bill is expected to be published in 2019.

  21. Are there any recognised environmental taxes payable by businesses?

    In the Netherlands there is a tax on the use of mains water and an energy tax on electricity and natural gas.

  22. Is dividend income received from resident and/or non-resident companies exempt from tax? If not how is it taxed?

    The participation exemption is a full exemption from Dutch corporate income tax (CIT) and applies to dividends and capital gains derived by a Dutch taxpayer from a qualifying participation. The participation exemption in practice is fairly straightforward and should normally apply to (groups of) operational companies.

    In summary, the participation exemption is applicable to an interest in a subsidiary if the following conditions are satisfied:

    • company in which the interest is held (i.e. the subsidiary) has a capital divided into shares;
    • The Dutch shareholder, or an entity related to it, owns at least 5% of the nominal paid-up share capital of the subsidiary; and
    • The subsidiary is not a portfolio investment (based on meeting the “Motive Test”) or is considered a qualifying portfolio investment (based on meeting the "Asset Test" or the "Subject-to-Tax Test"). Please note that only one of these tests has to be met.

    If the participation exemption would not apply, the dividends are included in the tax base of the taxpayer for CIT purposes.

    As part of the implementation of the European Anti-Tax Avoidance Directive, the Dutch government published its proposals for the introduction of a CFC regime in the Netherlands as of 1 January 2019. The CFC regime may deny the application of the Dutch participation exemption in certain situations (reference is made to question 12). Furthermore, payments that are by nature tax deductible at the level of the distributing entity are excluded from application of the Dutch participation exemption at shareholder’s level.

  23. If you were advising an international group seeking to re-locate activities from the UK in anticipation of Brexit, what are the advantages and disadvantages offered?

    The main advantages for re-locating a company to the Netherlands can be summarized as follows:

    • The Netherlands has an extensive bilateral income tax treaty network with over 100 treaties that aim to avoid double taxation by, among others, providing for beneficial allocation of capital gains taxing rights and reduced withholding tax rates. Furthermore, the Netherlands has concluded nearly 100 bilateral investment treaties.
    • The Dutch tax authorities are easily approachable and can enter into advance tax rulings (ATR) and advance pricing agreements (APA) with taxpayers for advance certainty on the tax treatment of certain structures and transactions, within the boundaries of published ruling policy.
    • Dutch companies are allowed to file their tax returns in a foreign currency other than the Euro if their annual reports are drawn up in the same foreign currency.
    • Group companies can be consolidated for Dutch corporate income tax (CIT) purposes if they form a fiscal unity, thus potentially leading to substantial tax savings and administrative relief.
    • The Netherlands has an expat regime. This regime is known under the name: 30% ruling. A 30% ruling is a tax-free reimbursement of 30% of the employee’s salary, provided that the employee has been recruited or assigned from abroad and has specific expertise, which is based on a minimum salary standard.
    • Pursuant to the participation exemption regime, benefits derived from a qualifying shareholding, including dividends and capital gains, are exempt from CIT.
    • Administrative procedures are quick and affordable.
    • The Netherlands is located in the centre of Europe and is classified as one of the most ‘wired’ countries in the world and hosts the largest data transport hub in the world. The Netherlands has excellent infrastructure, the population is well educated and English is widely spoken.
    • A disadvantage of relocating to the Netherlands is that the Netherlands have introduced a broad bonus maximum of 20% of the fixed salary, while the EU Directive regarding bonuses stipulated a maximum of 100% of the fixed salary.