On last year’s Prinsjesdag (Budget Day) 2014, the Dutch State Secretary for Finance addressed a letter to the Netherlands House of Representatives entitled ‘Choices for a better tax system’. The letter set out the ambitions of the government with regard to reforming the tax system. In the Annual Budget 2016 released earlier this week, the Cabinet comprehensively again addresses the importance of a good fiscal policy for the business climate in the Netherlands. No measures to strengthen our competitiveness are announced, however. Below a summary is presented of the Dutch principal measures proposed in the Tax Plan for 2016, relevant for international operating companies doing business in or with The Netherlands.
Participation exemption and participation credit system adjusted in line with changes to the Parent-Subsidiary Directive
The participation exemption and participation credit system will no longer be available for benefits or payments derived from a participation anywhere in the world if those benefits or payments are deductible for profits tax purposes at the level of the participation. This means that the Netherlands has now implemented the changes to the European Parent-Subsidiary Directive. Moreover, to the extent that the benefits and payments referred to above are deducted from the acquisition price of the participation, these benefits and payments also qualify as taxable income. Before the corporate income tax return can be filed, it must be established whether the foreign participation is eligible for the deduction referred to above.
Substantial shareholding regime amended
The substantial shareholding regime is changed to implement the general anti-abuse rule of the Parent-Subsidiary Directive. An entity resident outside the Netherlands that holds a substantial shareholding, in general at least 5 per cent of the interest, in a Dutch resident company will be subject to corporate income tax if the company is held with tax avoidance as one of the main purposes and it is not put into place for valid commercial reasons which reflect economic reality. Such valid reasons may exist if the entity conducts business activities and the substantial shareholding is attributable to that business, if the entity is the ultimate holding company or if the entity is an intermediate holding company that acts as a link between the ultimate holding company and the business, and the entity meets the substance requirements.
Extension obligation Cooperative to withholding dividend tax
A Cooperative resident in the Netherlands will be obliged to withhold dividend withholding tax on dividends distributed to its members if tax avoidance is one of the main purposes of the arrangements and the arrangement is not put into place for valid commercial reasons which reflect economic reality. Such valid commercial reasons for example may exist if the Cooperative has a meaningful economic relevance. The place of residence of the Cooperative members is irrelevant
New obligations for transfer pricing documentation
Make sure your documentation meets the new requirements. Taxpayers must submit the following documents to the tax authorities or have these documents in their files.
- Country-by-country report
Multinational groups with a Dutch resident parent company and with a consolidated turnover of at least EUR 750 million are obliged to submit a country-by-country report with the tax inspector annually. This report contains an overview per country of several prescribed indicators, such as turnover, profit, paid taxes and employees. In exceptional cases Dutch group companies of multinational groups where the ultimate parent company is not a Dutch resident company, must also submit the country-by-country report.
- Master file
The master file contains an overview of the business of the multinational group, including a description of the nature of the business activities, the general transfer pricing policy and the worldwide allocation of income and economic activities.
- Local file
The local file contains information relevant for the transfer pricing analysis in relation to intercompany transactions, where the Dutch taxpayer is involved. The obligation to prepare a master file and a local file applies to companies with a turnover of EUR 50 million or higher. Not meeting the proposed documentation obligations may lead to administrative or punitive sanctions and/or a reversal of the burden of proof. The new rules apply to book years beginning on or after 1 January 2016. Further execution rules have been announced regarding the form and contents of these documents.
Step-up dividend withholding tax in case of cross-border mergers and demergers
A step-up will be introduced in respect of cross-border mergers and demergers. The step-up should prevent that profit reserves of foreign merging or demerging companies will be brought under a Dutch dividend withholding tax claim. In principle only the contributed capital on shares that existed before the merger or demerger are acknowledged for dividend withholding tax purposes. However, for cross-border mergers and demergers a step-up will now become applicable, in order to avoid that a Dutch dividend withholding tax claim is created in respect of profit reserves of a foreign nature.
Marco Jansze, Partner (international) tax services
RSM Niehe Lancée Kooij Belastingadviseurs N.V.