Dutch Substance requirements - 'no reason to adapt current practice'

The Netherlands is famous for its tulips and windmills, however its attractive facilities and fiscal climate cannot be ignored. Due to inter alia its large treaty network and the absence of withholding taxes on royalties and interest, it is an attractive country for companies looking to reduce their overall tax burden. To use these tax facilities it is important for companies to have more than just a formal establishment. They will need an effective, genuine presence (also referred to as “substance”). This is subject to certain requirements, e.g. the effective management of a company must be established in the Netherlands.

During a recent debate in the Dutch Parliament, two members of the House of Representatives filed a motion requesting the government to scrutinise the substance requirements and to inform the House of Representatives of the outcome. The State Secretary of Finance has recently responded to this request*.

The State Secretary indicates that he sees no reason why an independent - statutory - substance requirement should be introduced in The Netherlands. He emphasises that international legislation covers the requirements to acknowledge the existence of legal entities.

Another finding of the survey is that Dutch substance requirements are not out of sync with international practice and with what may be expected from the Netherlands based on appropriate treaty application. The State Secretary thus sees no reason to adapt the Dutch practice.

* Letter of the State Secretary of Finance of June 25, 2012, no. IFZ/2012/85U