This country-specific Q&A provides an overview to tax laws and regulations that may occur in The Netherlands.
It will cover withholding 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-second-edition/
How often is tax law amended and what are the processes for such amendments?
Dutch tax law is regularly amended when bills are introduced in connection with the annual budget plan in September. Before publication the Ministry of Finance (the "MoF") sends tax bills to the State Council for review and comments. Subsequently, the MoF sends the bill to the Second and First Chambers of Parliament for their approval upon which it is signed into law by the King of the Netherlands and published in the State Gazette. During the parliamentary process stakeholders like the Dutch Order of Tax Advisors, Employers Organizations and the Labor Unions may provide input. In exceptional cases the MoF may organize internet consultations.
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?
In the Netherlands a corporate taxpayer is obliged to maintain its books and records for seven years following the end of a book year. In general, a book year is the calendar year.
A corporate tax payer is obliged to file a corporate income tax return electronically within five months after the end of a book year. This means for a tax payer using the calendar year for its book year, the corporate income tax return should be filed before June 1st. However, if the filing is handled by a professional tax adviser registered with the Dutch tax authorities, an extension for filing of the tax return of 11 months can be obtained. This implies that for instance the corporate income tax return for the year 2017 should be filed before May 1st, 2019.
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 key regulatory authorities are the Dutch tax authorities which are led by the MoF. For day-to-day tax matters, the tax authorities can be contacted through a call centre. More complex matters will be forwarded to the local tax inspector for further analysis.
Tax rulings can be obtained from the local tax inspector or in cross-border situations from the so-called ruling team based in Rotterdam.
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?
A dispute regarding corporate income tax matters usually starts when a tax assessment is imposed in deviation from a tax return filed or after a tax audit. An assessment should be appealed within six weeks after the date of the assessment. In the event the appeal is denied by the tax authorities, the denial can be appealed with a regional court and subsequently with one of the four courts of appeal and the supreme court in The Hague.
The appeal process can take a few months with the tax authorities and many years if litigation is initiated all the way to the supreme court.
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?
Most taxpayers that are subject to corporate income tax receive a preliminary assessment for the current year at the beginning of that year. The amount of this assessment is a provisional calculation based on data from previous years. Preliminary assessments can be paid in monthly instalments. Should the taxpayer have an dispute with the Dutch tax authorities, the payment of the disputed amount can be postponed until a final judgement is issued.
Is taxpayer data recognised as highly confidential and adequately safeguarded against disclosure to third parties, including other parts of the Government?
Data from taxpayers is treated as highly confidential and facts and circumstances of the taxpayer cannot be disclosed to third parties. In case of criminal offences the tax authorities will however provide the information to the respective authority dealing with such affairs.
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?
The Netherlands is a signatory to the Common Reporting Standards as prescribed by a Directive of the EU pursuant to the guidelines of the OECD and enacted related legislation effective as per January 1st, 2016.
A consultation document regarding the public register of ultimate beneficial ownership has been published by the MoF but has not yet been enacted.
What are the tests for residence of the main business structures (including transparent entities)?
An entity incorporated under Dutch law is in principle considered a resident of the Netherlands for Dutch tax purposes. In the event based on factual circumstances a Dutch company is deemed to be a resident of another country with which the Netherlands has concluded a tax treaty, the profits of the company may become taxable only abroad.
For holding and financing companies, additional so-called substance requirements are applicable e.g. (i) at least half of the managing directors reside in the Netherlands (ii) the managing directors resident in the Netherlands have the professional knowledge required to properly perform their duties, (iii) all management board meetings are held in the Netherlands, (iv) the main bank account is maintained in the Netherlands and (v) the books and accounts are kept in the Netherlands.
If an entity is transparent from a Dutch tax point of view, such as a "closed" limited partnership where the limited partners cannot transfer their partnership interest without the approval of all other partners, the limited partnership will not be subject to tax in the Netherlands. In the event the general partner is a resident of the Netherlands, it may be taxable over the proceeds derived from its interest in the limited partnership and under certain circumstances the profits attributable to the limited partners may be taxable in the Netherlands as well even if they are not residents of the Netherlands.
Can the policing of cross border transactions within an international group to be a target of the tax authorities’ attention and in what ways?
The Dutch tax authorities do not have special attention for cross border transactions within international groups.
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. However, the Netherlands is obliged to implement the anti-tax avoidance directive packages inspired by the BEPS Project final reports. Therefore, the Netherlands will also implement CFC and Thin Cap rules no later than January 1st, 2019.
Is there a general anti-avoidance rule (GAAR) and, if so, how is it applied by the tax authority? Eg is the enforcement of the GAAR commonly litigated, is it raised by tax authorities in negotiations only, etc?
The Netherlands has anti-avoidance rules in place with respect to international holding structures where foreign entities hold substantial (5% or more) shareholdings in Dutch entities. In addition a general anti-abuse rule was developed in case law ("fraus legis") for situations that were not covered by specific anti-abuse rules. The MoF holds the view that with the "fraus legis" concept and the more specific anti-abuse rules in place no further legislative action is required. Since the "fraus legis" concept can be widely applied, its applicability is regularly tested in court.
Are there any plans for the implementation of the OECD BEPs recommendations and if so, which ones?
The EU adopted the anti-tax avoidance directive (“ATAD 1”) inspired by the BEPS Project final reports. With the proposed ATAD 1 package, the EU hopes to ensure that BEPS Project recommendations are implemented by Member States in accordance with EU law and that taxes paid in the Member States correspond to the locations where value is created. Subsequently, the EU adopted an amendment to the anti-tax avoidance directive ("ATAD 2"). ATAD 2 extends the scope of ATAD 1 to hybrid mismatches involving third countries (i.e., non-EU countries) and encompasses forms of hybrid mismatches not covered by ATAD 1. The main goal of ATAD 1 and 2 is to provide a minimum level of protection for the internal market and strengthen the level of protection against aggressive tax planning. ATAD 1 and 2 are in addition to the proposed changes to the EU Parent Subsidiary Directive (regarding GAAR and anti-hybrid financing rules). In July of this year the following measures were published by the MoF in a consultation document.
Earning stripping rule (should be in force January 1st, 2019)
The interest deductibility limitation rule ("Earnings Stripping Rule") stipulates that interest expenses of a taxpayer that belongs to a group are non-deductible if the so-called 'excess interest expenses' (net difference between deductible interest expenses and taxable interest income) exceed the higher of €3,000,000 or 30% of the EBITDA for tax purposes (namely the taxable profit including excess interest expenses and amortization). Insofar taxable interest income and interest expenses are allocable to a foreign permanent establishment, these will not be taken into account. Non-deductible interest as a result of this measure may be carried forward to future financial years for an indefinite period of time.
The consultation document differs from ATAD 1 in the sense that no grandfathering rule applies to loans concluded before June 17th, 2016 and no exceptions are made for financial institutions or public infrastructure projects. It is also unclear whether the Netherlands will amend or forfeit its existing interest deductibility limitations.
CFC (should be in force January 1st, 2019)
A CFC is defined as an entity in which the taxpayer has, solely or jointly with an affiliated entity or individual (capital/profit/controlling interest of 25% as threshold for affiliation), directly or indirectly an interest of more than 50% of the nominal paid-up capital, voting rights or profit. The taxpayer should include non-distributed types of passive income received by its CFC (interest, royalties, dividends) in its Dutch taxable income. An exception applies when the CFC carries on a substantive economic activity, which is supported by personnel, equipment, assets and immovable property. Local corporate income tax that was due by the CFC on its qualifying passive income can be credited by the Dutch taxpayer against its Dutch corporate income tax due on the CFC-income.
Exit taxation (should be in force January 1st, 2019)
The Netherlands already has an exit tax in place in Dutch tax law and therefore no legislation is proposed for the exit tax as introduced in ATAD 1. The Dutch exit tax currently provides for a deferral of the taxes due for a period of 10 years, whereas ATAD 1 stipulates a period of at minimum 5 years. In this light, the consultation document provides for a shortened deferral of 5 years for corporate income tax purposes.
Hybrid mismatches (should be inforce January 1st, 2020 and January 1st, 2022 for the implementation of reverse hybrid mismatches)
Measures regarding hybrid mismatches that are also addressed in ATAD were not included in the consultation document.
How will BEPS impact on the government’s tax policies?
Considering the comments made under 12, most of the BEPS Project initiatives have been addressed by the MoF. We therefore do not foresee that the MoF's tax policies will be further formed by the BEPS philosophy.
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 generated by corporate taxpayers are subject to corporate income tax at a rate of 20% for profits up to €200,000 and at a rate of 25% over profits exceeding that amount. As of 2018, the 20% rate threshold of €200,000 will be increased to €250,000. Business profits generated by an individual are taxed with income tax at progressive rates with a maximum rate of 52% for net profits exceeding €67,071 (2017).
b) Employment income and pensions are subject to income tax and social security levies at progressive rates of 36.55% for income up to €19,981, 40.8% for income between €19,982 and €67,071 and 52% over the excess.
c) 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.
d) Savings income of individuals is not subject to income tax over the actual income received and capital gains realized, but is subject to income tax at a rate of 30% on the basis of a fictional return calculated over the individual's yield basis at the beginning of each year. The yield basis is the amount of assets less liabilities. The return is calculated on a gradated scale, whereby net assets up to €75,000 are deemed to generate a yield of 2.871%, net assets between €75,000 and €975,000 a yield of 4.6% and net assets exceeding €975,000 a yield of 5.39%.
e) Income of individuals from land is included in taxable income as business profits (see under a)) or as savings income (see under d)) depending on the fact whether it qualifies as active or passive income.
f) Capital gains realized by a corporate tax payer are treated similarly as business profits (see under a)). However, capital gains (and dividends) derived from qualifying shareholdings are exempt under the so-called participation exemption. For individuals capital gains are either subject to tax as business profits (see under a)), as savings income (see under d)) or as substantial interest income if the capital gain is realized on the sale of shares when the tax payer holds an interest of 5% or more in the share capital of a company.
g) The Netherlands does not levy stamp and/or capital duties, except real estate transfer tax (2% for residential properties and 6% for the rest) which is due upon the acquisition of real estate or an interest of 1/3 or more in a company directly or indirectly holding Dutch real estate.
Is the charge to business tax levied on, broadly, the revenue profits of a business as computed according to the principles of commercial accountancy?
In principle yes. However, for the calculation of the taxable profits certain adjustments may or have to be made, for instance in valuations of assets and the timing of realization of profits.
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 Dutch corporate income tax act prescribes which entities are taxable entities. These are i.a. limited liability companies (i.e. NV or BV), other entities with a capital divided into shares, cooperative associations (i.e. Coop), associations and foundations to the extent they conduct an enterprise and "open" limited partnerships (i.e. CV).
A limited partnership is considered "open" and thereby becomes a taxable entity if the limited partners can transfer their partnership's interest without the unanimous consent of all other partners. A limited partnership is not a taxable entity if it is considered "closed", which means that for the transfer of a partnership interest the unanimous consent of all partners is required.
Dutch law does not include the trust. Trusts are generally considered to be transparent for tax purposes.
Is liability to business taxation based upon a concepts of fiscal residence or registration? Is so what are the tests?
Entities incorporated under Dutch law are subject to tax in the Netherlands. The same applies to foreign entities which are deemed to be a resident of the Netherlands based on facts and circumstances and an applicable tax treaty. Although registration is usually required, it is not a determinative factor for taxability.
Are there any special taxation regimes, such as enterprise zones or favourable tax regimes for financial services or co-ordination centres, etc?
Are there any particular tax regimes applicable to intellectual property, such as patent box?
In order to stimulate research and development activities by Dutch taxpayers, self-developed registered patents and certain other assets for which a so-called research and development statement has been requested (collectively, “R&D Assets”) may be placed in a so-called Innovation Box. Pursuant to the Innovation Box regime, a 5% effective tax rate applies to income generated by a qualifying intangible, to the extent the income from the intangible exceeds the related R&D expenses, other charges, and amortization of the intangible. Income includes royalty income such as license fees and other income stemming from R&D Assets. The taxpayer should be the registered and beneficial owner of the patents and the beneficial owner of the other assets for which a so-called R&D statement has been requested. Trademarks are specifically excluded from this beneficial regime. This 5% effective tax rate will apply only to qualifying income. The non-qualifying income will continue to be subject to tax at the statutory rates of 20% and 25%.
Following the outcome of the OECD’s BEPS Project, minimum requirements for the application of so-called preferential IP regimes, such as the Dutch Innovation Box regime, have been established by the OECD. Consequently, the Dutch Innovation Box regime has been amended, resulting in the following five main changes:
- A so-called “nexus approach” has been introduced to determine income that is attributable to the innovation and eligible for the reduced rate;
- To be eligible for the reduced rate, all technical innovations must be developed as part of an “approved project,” which is an R&D project that qualifies for the Dutch R&D subsidy (also known as “WBSO”);
- For larger companies, i.e. companies with a global group-wide turnover of at least €50,000,000 annually or income generated by technical innovations of at least €7,500,000 per year, technical innovations must (i) be protected by a patent or plant breeders’ rights, or (ii) qualify as software;
- More extensive documentation and administrative requirements have been introduced; and
- Grandfathering rules will apply up to 2021 for innovations that were produced before June 30th, 2016 and that were already benefitting from the Innovation Box at that time.
These adjustments became effective as of January 1st, 2017. However, it should be noted that the new minimum requirements apply to new technical innovations that were produced on or after July 1st, 2016.
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 has a so-called fiscal unity regime for corporate income tax purposes. Pursuant to this regime a parent company and its subsidiary, upon joined request, will be considered one entity for Dutch corporate income tax purposes and file one tax return in the name of the parent company. Losses incurred by a member of the fiscal unity can be offset against taxable profits of other companies within the fiscal unity (vertical and horizontal). In order to form a fiscal unity for Dutch corporate income tax purposes, the following main conditions must be met:
- the parent company owns (directly or indirectly) at least 95% of the nominal paid-up share capital of a subsidiary, including statutory voting rights and profit entitlement;
- the fiscal years of the parent company and the subsidiary coincide;
- the profit of the parent company and the subsidiary is determined according to the same tax principles;
- the parent company is a NV, a BV, a Coop or a similar company incorporated in an EU member state and tax resident in the Netherlands;
- the subsidiary of a fiscal unity is a NV, a BV or a similar company incorporated in an EU member state and tax resident in the Netherlands.
Are there any withholding taxes?
The Netherlands levies dividend withholding tax at a rate of 15%. There is no withholding tax on royalties and interest, unless the loan is considered to be a hybrid loan.
Are there any recognised environmental taxes payable by businesses?
The Netherlands levies tax on the use of mains water and the use of electricity and natural gas.
Is dividend income received from resident and/or non-resident companies exempt from tax? If not how is it taxed?
In the Netherlands the participation exemption entails that, dividends and capital gains derived by a Dutch company from a qualifying shareholding are exempt from Dutch corporate income tax. The participation exemption applies if the Dutch company (i) holds a shareholding of at least 5% of the nominal paid-up capital in a company which capital is divided into shares and (ii) the participation is not held as a mere passive investment (the "motive test"). If the motive test is not passed, the participation exemption may still be applicable if (a) the company in which the participation is held is subject to a "realistic levy of at least 10%" according to Dutch tax standards (the "subject-to-tax test") or/and (b) the assets of the company in which the participation is held do not consist directly or indirectly for more than 50% of so-called "low-taxed free passive assets" (the "asset-test").
From the perspective of an international group seeking to re-locate activities from the UK in anticipation of Brexit, what are the advantages and disadvantages offered by the jurisdiction?
The main advantages for re-locating a company to the Netherlands can be summarized as follows:
- The Netherlands has a network of nearly 100 bilateral tax treaties to avoid double taxation which, in many cases, provide reduced or no withholding tax on dividends, interest and royalties. Furthermore, the Netherlands has concluded nearly 100 Bilateral Investment Treaties.
- The authorities are easily approachable for clarity and certainty in advance. Moreover, taxpayers can secure their tax position by way of advanced tax rulings.
- There is no statutory withholding tax on interest and royalties.
- The Netherlands have a tax consolidation regime for corporate groups by which tax losses can be off set horizontally and vertically.
- For certain expats a special tax program is available in the so-called 30% regime. In this regime 30% of the expats salary be provided tax exempt.
- The Netherlands has a well-developed participation exemption, i.e. a full exemption on qualifying dividends and capital gains.
- Administrative procedures are quick and affordable.
- The Netherlands is geographically located in the center of Europe and has excellent infrastructure. The average education is amongst the highest in the world and the English language is the secondly spoken language.
- A disadvantage of relocating to the Netherlands is that the Netherlands have introduced a broad bonus maximum of 20% of the fixed salary, while in the EU Directive regarding bonuses stipulated a maximum of 100% of the fixed salary.