Measures against letterbox companies

The Dutch government has stated that it has its own responsibility in “preventing the inadvertent use of tax treaties.” Within that framework, unilateral measures have been announced. These measures provide for, among other things, the tightening up of the substance requirements for particular interest and royalty flow through companies and the exchange of information with treaty partners if these substance requirements are not met.

The substance requirements ensure that the management and administration of the company are carried out in the Netherlands with a suitable capital which fits with the functions and risks of the company. It is proposed that the company itself needs to declare in its annual tax return whether these conditions are met. If not, if that company actively makes use of a Dutch tax treaty, the Dutch tax authorities may spontaneously exchange information with the respective tax treaty partner. It is important to note that within the present practice, the most common of these substance requirements are generally already being met by most companies. 

The starting point of the measures announced is that the Netherlands must act in good faith with its tax treaty partners, whereby the Netherlands also strives to remain attractive to foreign investors from a tax point of view. Currently, these measures have been announced and still need to be finalized. If you are wondering whether the above-mentioned proposed measures apply to you, please do not hesitate to contact your partner international tax services at Baker Tilly Berk.