Dutch dividend withholding tax for intermediate HoldCo’s to be abolished

On Budget Day 2016 the Dutch State Secretary of Finance announced to aim to subject profit distributions by Dutch Coops to Dividend Withholding Tax. At the same time, it was announced that for all legal entities dividend withholding tax would be abolished for qualified situations. The main goal of this legislation is to improve the Dutch investment climate and also to provide the BV and NV the same level playing field as the Dutch Coop. On Budget Day a further elaboration was provided.

Introduction

The Netherlands is a favorable jurisdiction to establish holding companies, due to its extensive double tax treaty network as well as its national corporate income tax legislation (providing for a generous participation exemption). Where a Dutch limited liability company (“besloten/naamloze vennootschap”, or BV/NV) could still be subject to Dutch dividend withholding tax (“DWT”) a Dutch Coöperatieve Vereniging (“Coop”) may be exempt from DWT.

The use of a Coop as holding company has been limited per 2012, when specific anti-abuse legislation was introduced. The Dutch State Secretary of Finance has now further elaborated on his aim to eliminate the different DWT treatment of a BV/NV and Coop, for similar activities.

Legislative proposal

On 20 September, 2016 (Budget Day) the State Secretary announced more details of the legislative proposal concerning Coops subject to DWT. The proposal intends to amend the DWT Act 1965 to take away the differences between BV/NV and Coop. A Coop would be effectively subject to DWT if and when the member has a participation of 5% or more in the Coop.

At the same time the exemption for participation dividends would be extended in qualified situations where dividend would be distributed to Dutch treaty residents. This extended DWT exemption would be applicable for Coops and BV/NV’s. Since the Netherlands is well-known for the extensive double tax treaty network, the extension should create more flexibility of non-taxed dividend distributions for participations regardless if profits are distributed by a BV/NV or Coop. It should be noted the DWT exemption would be denied when abuse is present. Anti-abuse rules will be in place, in line with the GAAR of the European Parent-Subsidiary Directive.

Entry into force of the legislation

The announcement of the State Secretary would be followed by a tax bill. The State Secretary aims the legislation to enter into force no later than 1 January, 2018. Depending on the legislative proposal, this could lead to tax planning on dividends to be distributed.

We will keep you updated, when more clarification is given. Do you have any questions about this legislative proposal? Please do not hesitate to contact us.

Disclaimer

The above is based on letters of the State Secretary to Dutch Parliament. The information contained in this Tax Alert is of a general nature and should not be relied upon as advice for a particular situation, since the legislative process is yet to be started. Baker Tilly does not accept any liability for any action that may be undertaken or omitted on the basis of the information contained in this memorandum. 
Netherlands, 23 September, 2016