An internet consultation of the amendment of the Dutch dividend withholding tax rules has been published. The draft proposal contains three subjects: the dividend withholding tax for cooperatives, the general withholding tax exemption and anti-abuse provisions regarding this subject are amended. The outline of the proposal is in line with the previous communications of the state secretary of Finance regarding this subject last January and last September.
This internet consultation is no surprise given the earlier communications (our news message) the dividend withholding tax exemption for holding cooperatives would be abolished. Therefore, cooperatives with a general business enterprise in the Netherlands remain untouched by these new rules. Secondly, a general dividend withholding tax exemption is introduced with regard to countries with which a tax treaty has been concluded. Thirdly, the anti-abuse provisions with regard to the dividend withholding tax and qualifying taxable foreign interests are amended in order to align them with EU-regulations and the outcome of the BEPS-project. Below we will provide for background for each of these subjects.
Withholding tax for holding cooperatives
Holding cooperatives will become subject to dividend withholding tax with regard to qualifying interests. A qualifying interest is an interest which is entitled to at least 5% of the annual profit and/or at least 5% of the liquidation proceeds. The interests of parties (either natural and/or legal persons) working together in a group are considered jointly.
A holding cooperative is a cooperative which activities consist for 70% or more out of the holding of interests in other companies and/or the financing of group companies. According to the explanatory notes, it may in certain private equity structures be possible that, although the value of the subsidiaries of the cooperative is more than 70% of the balance sheet, a cooperative is not regarded as a holding cooperative due to the presence of employees, office space and the active involvement with the subsidiaries.
General withholding tax exemption
A general withholding tax exemption will be introduced for companies resident in a country with which a tax treaty has been concluded with contains a paragraph regarding the tax treatment of dividends. The exemption will only apply for qualifying interests, i.e. generally speaking an interest of 5% or more in the Dutch company.
In addition to the general withholding tax exemption an anti-abuse provision will be introduced. This provision will be in line with the anti-abuse provision from the EU Parent-Subsidiary Directive and with the principal purpose test from the BEPS-project of the OECD. The anti-abuse provision stipulates that no exemption can be obtained, if and when the interest in the Dutch company is being held with the main purpose or one of the main purposes to avoid the levy of dividend withholding tax (subjective test) and in case of an artificial construction or transactions (objective test).
An artificial construction is deemed not to be present in case the following criteria are met:
- at least half of the directors of the company are resident in the country of the company,
- the directors have sufficient professional knowledge,
- the board decisions of the company are taken in that country,
- the main bank account(s) are present in that country,
- the book keeping is present in that country,
- the company is not (regarded as) a tax resident of another country,
- the company has a total wage of € 100,000, and
- the company has an office space in that country for at least 24 months.
Furthermore, the corresponding anti-abuse provision in the corporate income tax for qualifying foreign interests (i.e., the provision applicable to proceeds from alienation of interests that do not qualify for the withholding tax exemption) is amended in the same sense.
Action from you required!
We highly advise you to examine the impact of this draft proposal in your situation if a Dutch cooperative is part of your legal structure. Moreover, we advise to check whether your current structure meets the objective or subjective test of the new dividend withholding tax exemption.
Naturally, we would be happy to examine your structure and discuss possible alternatives with you.
The draft proposal is open for consultation until 13 June. Thereafter, a final proposal will be drafted and send to parliament, probably on ‘Prinsjesdag’ (19 September). It is the intention that the new legislation will be introduced as from 1 January 2018.
Please do not hesitate to contact us, should you have any questions or comments.