Proposed changes to the Dutch Withholding Tax Act

On Budget Day 2016, the Dutch Ministry of Finance sent a letter to the Parliament with proposed changes for the Dutch Dividend Withholding Tax Act. At one hand, the proposed changes include a withholding obligation for cooperatives. On the other hand, the proposal is introducing a new general exemption of Dutch Dividend withholding tax for intermediate holding companies in qualifying situations.

Dutch Withholding Tax obligation for cooperatives

At this moment, there is still no draft legislation in place. The Ministry of Finance has published an additional report about this subject at the end of December 2016. In this report, the Ministry confirms that for cooperatives of which the activities include for 70% or more holding activities or direct/indirect financing subsidiaries, the cooperative is subject to Dutch withholding tax. This proposed obligation for Withholding Tax for cooperatives is only for qualifying members of the cooperative. A qualifying member of the cooperative is a member that has a participation of 5% or more in the yearly result or in the liquidation payment.

General exemption of Dutch Withholding Tax for intermediate holding companies

With this proposal, the exemption for participation dividends will be extended for intermediate holding companies in international corporate business structures. This intermediate holding company could be a cooperative, as well a Dutch BV or NV. By allowing to apply for this withholding tax exemption for all of these entities, the Dutch Withholding Tax consequences are becoming more equal for these several entities.

The conditions for the general exemption of Dutch Withholding Tax for intermediate holding companies, such as a BV, NV or a cooperative, are the following:

  1. The dividend must be a participation dividend in a corporate structure;
  2. If the parent company or member is a resident of the European Union, the general exemption is applicable. The exemption is applicable for a parent company which is resident of a country that has a tax treaty with the Netherlands as well;
  3. For the intermediate company, there must be no abuse of the rules.

Anti-abuse rules

The dividend withholding tax exemptions is not applicable if the situation of the intermediate holding company is artificial, non-business like or if abuse is present. The anti-abuse rules for this Dividend Withholding Tax exemption will be in line with the GAAR of the European Parent-Subsidiary Directive:

  • There is no artificial construction for the situation that the international business structure is business like and in line with the economic reality.
  • For the situation that the BV or cooperative is actively conducting business, has an office, and people working at the payroll for the company, there is no abuse.
  • If the membership of the cooperative, or if the shares of the subsidiary, are part of the business activities of the parent company, the situation will be business-like as well.

Attention is required

The State Secretary of the Ministry of Finance aims that the legislation will enter into force no later than January 1st, 2018. The legislative proposal will be presented at the internet for consultation in the first half of 2017. During this consultation period, we assume that the Ministry of Finance will clarify the consequences of the legislation for cooperatives with US LLC Members.

Depending on the legislative proposal, this could lead to tax planning on dividends to be distributed. Especially for the intermediate holding companies with members or shareholders that are non-residents of the EU, or if the company has its business seat in a country that has no tax treaty with the Netherlands, attention is required. If this proposed legislation will enter into force, structures with parent companies or members of cooperatives that are non-EU and non-treaty members, shall have to be revised.

Do you have an international business structure with an intermediate holding company in the Netherlands? And do you want to reassess this structure? Or do you have any questions about this legislative proposal? Please do not hesitate to contact us.