Q&A guidance on revised Dutch tax ruling practice
The Dutch tax ruling practice for tax rulings with an international character has been revised as from 1 July 2019 (see also our Tax Alert of 1 July 2019). This Q&A intends to give further guidance on this revised international ruling practice. In this Tax Alert we provide you with some key takeaways:
- Tax avoidance
- Under the revised ruling policy, an international tax ruling is not granted if the transaction for which the ruling is requested has the sole or decisive motive to avoid Dutch or foreign taxes. Based on the Q&A this avoidance aim is not restricted to corporate income tax and dividend withholding tax, but also other taxes should be taken into account in determining whether avoidance of tax is the sole or decisive motive for the transaction.
- The ‘tax avoidance’ test mentioned above is not identical to the DAC6 ‘main benefit’ test and the ‘principal purpose’ test of the Multilateral Instrument. Hence, reporting a transaction under DAC6 does not necessarily mean that no tax ruling can be obtained.
- Under the revised ruling policy, an international tax ruling is not granted if the transaction for which the ruling is requested has the sole or decisive motive to avoid Dutch or foreign taxes. Based on the Q&A this avoidance aim is not restricted to corporate income tax and dividend withholding tax, but also other taxes should be taken into account in determining whether avoidance of tax is the sole or decisive motive for the transaction.
- Economic nexus
- Under the revised ruling practice, an international tax ruling can only be obtained by companies that have sufficient 'economic nexus' with the Netherlands. Further to previous guidance in this respect, the Q&A describes whether a large international concern which has a foreign financial department (40 FTE) and a smaller financial department (10 FTE) in the Netherlands, has sufficient economic nexus in the Netherlands to obtain a ruling in respect of its financing activities. In case the 10 FTE perform relevant activities in respect of the financial flows through the Netherlands, there may be sufficient economic nexus. If such financial streams, however, based on the relevant facts and circumstances, do not match the functionality of the 10 FTE working in the Netherlands there will not be sufficient economic nexus. Besides, if foreign withholding taxes would be reduced in respect of the financial streams flowing through the Netherlands, it will depend on the relevant facts and circumstances whether the avoidance of foreign taxes could be considered the sole or decisive motive for the transaction.
- Based on the Q&A there is sufficient economic nexus in the Netherlands to obtain a ruling regarding the application of the Dutch participation exemption, also if the entity applying for the ruling regarding the participation exemption itself does not employ the relevant personnel to manage the relevant participation(s), provided that the relevant personnel is made available within the group by a Dutch group entity.
- Under the revised ruling practice, an international tax ruling can only be obtained by companies that have sufficient 'economic nexus' with the Netherlands. Further to previous guidance in this respect, the Q&A describes whether a large international concern which has a foreign financial department (40 FTE) and a smaller financial department (10 FTE) in the Netherlands, has sufficient economic nexus in the Netherlands to obtain a ruling in respect of its financing activities. In case the 10 FTE perform relevant activities in respect of the financial flows through the Netherlands, there may be sufficient economic nexus. If such financial streams, however, based on the relevant facts and circumstances, do not match the functionality of the 10 FTE working in the Netherlands there will not be sufficient economic nexus. Besides, if foreign withholding taxes would be reduced in respect of the financial streams flowing through the Netherlands, it will depend on the relevant facts and circumstances whether the avoidance of foreign taxes could be considered the sole or decisive motive for the transaction.
- Non-arm’s-length transaction: Based on the Q&A no tax international tax rulings are granted in respect of non-business like transactions prompted by shareholder motives.
Stibbe contributes Dutch chapter to Chambers Global Practice Guides Corporate Tax 2020
Lastly we are proud to share with you the Dutch chapter of the Chambers Global Practice Guides Corporate Tax 2020, that was written by Michael Molenaars, Jeroen Smits, Reinout de Boer and Rogier van der Struijk. Besides providing you with an outline of Dutch corporate income taxation, the chapter pays attention to the impact of ATAD and BEPS on the Dutch corporate income tax landscape.
