Tax Insights

from International Tax Services

Dutch draft tax legislation would

align Dutch tax rules with the EU
Parent-Subsidiary Directive and
OECD guidelines

September 17, 2015

In brief
The Netherlands published, on September 15, 2015, proposed corporate tax legislation that addresses the
Dutch participation exemption regime, the so-called substantial interest rules, the tax treatment of
cooperatives, and transfer-pricing compliance requirements.

The Dutch participation exemption regime would align with changes in the EU Parent-Subsidiary
Directive, resulting in taxability of income that may be deducted in foreign jurisdictions (e.g., hybrid
loans). The main features of this regime would remain unchanged.

Dutch cooperatives would remain exempt from Dutch dividend withholding tax, unless certain anti-
abuse rules apply. This would align with the general anti-abuse rule (GAAR) in the EU-Parent-Subsidiary
Directive. Also the Dutch substantial interest rules will be aligned with the GAAR in the EU-Parent-
Subsidiary Directive. We expect no material impact on existing and new structures; this has been
confirmed by the Dutch tax authorities.

Finally, the proposed legislation would introduce Dutch transfer pricing country-by-country reporting
rules (CBCR), in conformity with OECD transfer pricing guidelines.

The proposed legislation does not include an anticipated amendment of the Dutch fiscal unity regime
that would allow sister companies and indirect subsidiaries, in certain situations, to form a fiscal unity.
These situations are currently regulated by a Decree issued after a favorable decision from the European
Court of Justice. We understand that draft legislation was ready for publication, but the EU Groupe
Steria case outcome may have generated additional questions about the Dutch fiscal unity regime that
the Ministry of Finance wishes to further investigate. Thus the proposal is expected at a later date.

In detail remain the same. However, covered by the participation

Main features of Dutch
following changes in the EU exemption, or the Dutch
participation exemption will
Parent-Subsidiary Directive, participation credit system, if
not change
income from participations that the participation exemption
is tax-deductible in another
The main features of the Dutch jurisdiction no longer will be
participation exemption will

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Tax Insights
does not apply. As a result, such
income will be subject to Dutch
corporate income tax. This also would
apply to dividends and other income
items included in the acquisition price
of a participation that previously were
deducted in another jurisdiction. This
measure could affect structures with
hybrid loans or preferred shares.
Observation: The proposed
legislation should not have a material
impact on existing or new structures.
Most Dutch head offices and
intermediate holding companies still
will be able to benefit from the Dutch
participation exemption. These
include the absence of a holding
period and the 100% exemption for
dividends and capital gains.
Dutch substantial interest rules
updated to align with EU Parent-
Subsidiary Directive
The Dutch substantial interest rules
are being updated to reflect the
introduction of the GAAR in the EU
Parent-Subsidiary Directive.
Under the Dutch substantial interest
rules, which may apply to abusive
structures, foreign companies may be
subject to Dutch corporate income tax
on income derived from a Dutch
subsidiary. Under the proposed
legislation, the Dutch substantial
interest rules are triggered if tax
avoidance is one of the foreign
company’s main purposes for the
shareholding in the Dutch subsidiary
and the Dutch subsidiary is not put
into place for ‘sound business
reasons.’
Sound business reasons exist if,
among other reasons, the foreign
shareholder:
• conducts business activities and
the substantial shareholding is
attributable to that business
• is the ultimate holding company
(head office), or
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• is an intermediate holding
company that acts as a link
between the ultimate holding
company and the lower-tier
business, and the entity meets
the minimum Dutch substance
requirements.
Observation: We do not expect this
change to have a significant impact on
current structures. If a foreign
intermediate holding company of a
Dutch entity is not already compliant,
it should ensure that it meets the
Dutch minimum substance
requirements. The Dutch tax
authorities have confirmed that they
foresee no material changes to current
tax practice.
Dutch cooperatives remain
exempt from Dutch dividend
withholding tax
Under current Dutch domestic law,
cooperatives are not subject to Dutch
dividend withholding tax unless
specific anti-abuse rules apply. Under
the proposed legislation, this principle
remains unchanged.
The only change is an update of the
anti-abuse rules to align with the
newly introduced GAAR in the EU
Parent-Subsidiary Directive. Dividend
distributions from a Dutch
cooperative would become subject to
Dutch dividend withholding tax, if tax
avoidance is one of the main purposes
of the holding structure and the
structure is not put into place for
sound business reasons. Sound
business reasons exist if, among
others, the cooperative has economic
relevance or if the cooperative is
owned by an intermediate holding
company that meets the minimum
Dutch substance requirements.
Observation: The newly introduced
anti-abuse rules should not have a
significant impact on existing or new
structures. Dutch cooperatives — in
conjunction with other Dutch tax
incentives such as the participation
exemption regime and the extensive
double tax treaty network — remain
an excellent holding platform for
(foreign) operations worldwide. The
Dutch tax authorities have confirmed
that they foresee no material changes
to current tax practice.
CBCR and transfer pricing
legislation
The Dutch transfer pricing rules
already align with OECD guidelines.
The legislation includes two
compliance measures.
• International groups with a head
office in the Netherlands and
consolidated turnover exceeding
EUR 750M should submit a
CBCR file with their annual
Dutch corporate income tax
return. The CBCR file should
include descriptions of several
indicators (such as turnover,
profit, paid taxes, and employees)
per country.
• International groups with an
entity (head office or subsidiary)
in the Netherlands and a
consolidated turnover exceeding
EUR 50M should maintain a
master file and a local country
file, to be presented to the Dutch
tax authorities if requested. The
master file should include an
overview of the business, transfer
pricing policy, and worldwide
allocation of the group’s income.
The local file should contain
information relevant to the
transfer pricing analysis for
intercompany transactions
involving the Dutch resident
entity. Transfer pricing
documentation may be prepared
in either English or Dutch.
Observation: Dutch transfer pricing
rules conform to OECD transfer
Tax Insights

pricing guidelines. The introduction of payment in the source country Dutch minimum substance
these compliance measures aligns should be aware that as of 2016 requirements.
with the actions of several other the income received on such
OECD member states. • US companies with Dutch
instrument will no longer be
subsidiaries will be required to
The takeaway exempt in the Netherlands.
maintain TP documentation as of
• US companies owning Dutch • US companies that own their 2016 if consolidated turnover
holding companies that financed Dutch entities through exceeds EUR 50m. They must
their subsidiaries with intermediate holding companies prepare and file a CBCR file if
instruments that qualify as equity that do not run an active business consolidated turnover exceeds
from a Dutch tax perspective enterprise should make sure that EUR 750m.
while creating a deductible those intermediate holding
companies comply with the

Let’s talk
For a deeper discussion, please contact:

International Tax Services

Maarten Maaskant Michiel Moison Aafke van Welie

+1 (646) 471 0570 +1 (646) 471 3091 +1 (646) 471 8519
maarten.p.maaskant@us.pwc.com michiel.moison@us.pwc.com aafke.van.welie@us.pwc.com

Pieter Ruige
+1 (212) 805 6681
pieter.ruige@us.pwc.com

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