In line with its tradition as a stable international financial centre there were no major legislative changes to affect the international investor in 2011, but there were some minor amendments to companies law while several amendments to Dutch tax legislation were passed to come into force in 2012.
On 16 September the government published its 2012 tax plan and several accompanying bills. The plan proposed various changes in Dutch tax legislation. Following approval from the House of Representatives, discussions in the Senate and several amendments, the Senate finally adopted the 2012 Dutch Tax Package on 20 December 2011.
Foreign permanent establishments
The profits and losses of a foreign permanent establishment of a Dutch company will be excluded from the tax base. For tax years starting after 1 January 2012, an object exemption will be applied to active business income that is derived from a foreign permanent establishment (PE), irrespective of whether a treaty applies and irrespective of whether the profits are subject to tax.
The exemption is therefore very similar to the participation exemption in the Netherlands. Previously the foreign PE's profits had to be included in the taxable profits and subsequently an exemption had to be claimed. The disadvantage of the new system is that a foreign PE's losses cannot be deducted; the advantage is that is easier to administer due to simplicity.
As a general rule the object exemption will not apply to income derived from a passive foreign portfolio investment enterprise - a foreign PE whose activities directly or indirectly consist of more than 50% in portfolio investment or passive group financing/licensing/leasing activities and that is not subject to an effective tax rate considered realistic under Dutch tax principles. In that case the foreign PE's profits will be included in the Dutch tax base, although, under certain conditions, it may receive a (deemed) credit for the underlying tax.
Rules for foreign entities
Foreign substantial shareholders of a Dutch company - those owning 5% or more of the share capital - can be subject to Dutch corporate income tax on dividends, capital gains and interest derived from the Dutch company. This applied if the shareholding or loan did not constitute an asset of an active enterprise and the main purpose was to avoid Dutch income tax.
As of 1 January 2012, this rule will only apply if the motive is 'abusive'; that is if the main aim is to avoid liability to Dutch corporate income tax or dividend withholding tax. The corporate income tax liability will be limited to 15% if the shares are held only to avoid dividend withholding tax. This change has been made in order to avoid a potential challenge by the ECJ under the EU rules on freedom of movement of capital.
Previously the Dutch Cooperative was the only entity that was exempt from the Dutch dividend withholding tax. Although the Cooperative is a legal entity that originates from the 19th century, it has caught the attention of tax planners in the last 10 years because it offered a direct exit route to zero-tax jurisdictions. They were not subject to dividend withholding tax and the above corporate tax on foreign substantial shareholders could be avoided if the interest in the Dutch Cooperative was held as the asset of an active enterprise.
As of 1 January 2012, the Cooperative will be subject to dividend withholding tax if there is an 'abuse' motive. This will be the case if either one of the following conditions is satisfied: the interest in the Cooperative does not form part of the assets of an active enterprise; or the Cooperative is used to avoid a dividend withholding tax claim.
The latter will be the case if a Dutch entity has retained earnings, and therefore has an accrued dividend withholding tax claim, and a Cooperative is interposed between the first entity and the foreign shareholder.
As before, it is advisable to obtain a tax ruling (which is provided free of charge) when using a Cooperative. The Netherlands has a well-established ruling practice on the basis of which 100% certainty as to the Dutch tax treatment of a particular transaction or structure can be obtained in advance. By laying down clearer rules governing the use of a Cooperative in international structures it has now become clear in which cases the Cooperative has the blessing of the Dutch government as a tax planning vehicle.
Interest deduction limitations
The final important tax change to go into effect as of 1 January 2012 is a new limitation on the deduction of interest payments paid by an acquisition holding if they are used to reduce the taxable income of the acquired company. Hitherto it was a common strategy to leverage an acquisition holding highly and subsequently join it in a "Dutch fiscal unity" - entities consolidated for tax purposes - with the acquired company.
The limitation applies to interest expenses, including costs and foreign exchange losses, on related party debt, as well as third party debt used for acquisition financing. It does not apply if the interest expense is below '1 million or if the debt-equity ratio of the fiscal unity does not exceed 2:1. If it does apply, interest can only be deducted up to a maximum of 60% of the acquisition price in the first year. After this the maximum allowed interest deduction is reduced with 5% annually until 25% is reached.
Non-deductible interest expense under this measure may be carried forward to future years. Grandfathering rules exist for target companies that have been acquired and included in a fiscal unity - or merged/demerged in the acquisition company - prior to 15 November 2011.
Changes to dutch companies
The long-discussed proposal to make the Dutch BV easier and cheaper to incorporate is finally set to go into effect in 2012. A notarial deed to incorporate the company will no longer be necessary in most cases. However if there are multiple shareholders or non-standard articles of association it will likely still be required. Also the minimum capital requirement of '18,000 will be abolished.
Other planned changes to company law are: to allow for voting and non-voting shares, as well as for dividend bearing and non-dividend bearing shares; and to introduce the possibility of a one-tier board (with both executive and non-executive directors). A previous requirement to obtain a declaration of non- objection from the Minister of Justice to incorporate a BV was abolished in 2011. This means that the time frame within which a BV can be incorporated has been substantially reduced.
As of 1 July 2011, the Act on Supervision of Trust Offices was amended to clarify that the sale of legal entities and acting as an intermediary for such was governed by the legislation. Furthermore it was clarified that the provision of a mailing address and related secretarial services by themselves no longer qualify as a regulated activity. Another welcome relaxation is that the definition of ultimate beneficial owner (UBO) has changed and only those holding a beneficial ownership of 25% or greater have to be identified. Previously it was 10%.
Curacao tax treaty
On 12 December, Dutch State Secretary of Finance Frans Weekers announced that The Netherlands and Curacao had reached an agreement on the main issues regarding a new bilateral double tax treaty. It is intended that the new tax facility can be applied as from 1 January 2013.
The Netherlands is well positioned to meet the requirements that international financial centres are expected to meet today, while staying true to its age-old reputation as a trading nation.Back to Articles
The information provided in this article is for general information purposes only. The information is not intended to be comprehensive or to include advice on which you may rely. You should always consult a suitably qualified professional on any specific matter.
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