The Netherlands tax authorities have formulated certain minimum substance requirements that a company is required to meet in order to substantiate that it is a tax resident of the Netherlands and entitled to the benefits of a tax treaty.
The minimum substance requirements are as follows:
- At least half the statutory directors with decision-making power are resident in the Netherlands;
- Netherlands resident directors have the necessary professional knowledge to properly perform their duties. The duties of (the board of) directors include at least the decision-making process regarding the transactions that would be performed by the entity, and the latter has sufficient staff (own or third party) for the adequate execution and registration of the transactions;
- Important board decisions are taken in the Netherlands;
- The (head) bank account of the corporation is maintained in the Netherlands;
- Records and administration are kept in the Netherlands;
- The entity fulfills all its Netherlands reporting obligations with respect to corporate income tax, wage tax, value-added tax, etc.;
- The business address of the entity is domiciled in the Netherlands. To the knowledge of the entity, it is not (also) regarded as resident in another state; and
- The equity of the entity is in adequacy with the functions performed.
On 1 January 2014, article 3a of the Implementing Decree on Assistance in International Tax Matters (Uitvoeringsbesluit internationale bijstandsverlening bij de heffing van belastingen (IDAITM)), containing the new substance requirements for financial holding companies, came into effect.
These requirements were introduced to prevent taxpayers with no real presence in the Netherlands from benefitting from the Dutch treaty network.
Article 3a IDAITM applies to resident corporate taxpayers, subject to corporate income tax (the taxpayer) whose activities mainly consist of (in)directly receiving (and paying) interest, royalties, rent, or lease payments from (to) non-resident entities that are part of the concern to which the taxpayer also belongs.
The requirements listed in article 3a IDAITM, signifying a real presence in the Netherlands are that:
- At least half of the statutory board members with decision-making powers must reside in the Netherlands;
- Board members possess the required knowledge to, in short, execute their tasks;
- The qualified staff is present to execute and register the taxpayers' activities;
- The decisions by the board are taken in the Netherlands;
- The most important bank accounts are held in the Netherlands;
- The accounting records are kept in the Netherlands;
- The address of the taxpayer is in the Netherlands (abolished effective 1 January 2021);
- The taxpayer is, to his knowledge, not a tax resident of another country (abolished effective 1 January 2021);
- The taxpayer runs a real risk as regards the loans or royalty/rental/lease agreements (see also Note below);
- The taxpayer has an amount of equity commensurate with the real risk he runs;
- The taxpayer incurs wage costs of at least EUR 100,000 for performing the intra-group financing or leasing activities (effective 1 January 2021); and
- The taxpayer operates from an office space in the Netherlands for at least 24 months (effective 1 January 2021).
Such taxpayers must, when they file their tax returns (at the latest), declare that they fulfill all the substance requirements listed above. If the taxpayer does not fulfill all the requirements, the taxpayer must when the tax return is filed (at the latest):
- Declare which requirement(s) is (are) not fulfilled;
- Provide documentation on the basis of which a determination can be made whether or not the requirements have been satisfied;
- Provide an overview of the received interest, royalty, rental, and lease payments for which the taxpayer has requested, or could still request, application of:
- a provision for the elimination of double taxation (e.g., a tax treaty);
- interest and Royalties Directive (2003/49); and
- a national provision implementing the Interest and Royalties Directive; and
- Provide the names and addresses of the entities from which the payments mentioned above originated.
In the event, a taxpayer does not fulfill the requirements and (intends to) make use of one of the methods for the elimination of double taxation mentioned above, the Netherlands government will then spontaneously provide the necessary information about the taxpayer to the relevant treaty partner or EU Member State.
Effective 1 January 2020, the Netherlands adopted hybrid mismatch rules in line with the EU Anti-Tax Avoidance Directive (ATAD 2). The hybrid mismatch rules enable combating tax avoidance practices by neutralizing the effects of hybrid mismatches arising from payments or alleged payments between the Netherlands and EU Member States/ other countries and those between Dutch resident companies with non-resident related parties.
Transactions covered by the hybrid mismatch rules include:
- Hybrid entity mismatch;
- Hybrid financial instrument mismatch;
- Hybrid transfers;
- Disregarded permanent establishment mismatch;
- Imported mismatch; and
- Tax residency mismatch.
A mismatch outcome is not considered a hybrid mismatch unless it arises between:
- Associated enterprises;
- A taxpayer and an associated enterprise;
- A head office and its permanent establishment(s);
- Two or more permanent establishments of the same entity; or
- Under a structured arrangement (which may include an arrangement with unrelated enterprises).
Associated enterprises for the purposes of the hybrid mismatch rules include the following:
- An entity owning, directly or indirectly, at least 25% of the voting and/or economic rights of the taxpayer;
- Entities that are a part of the same consolidated group for accounting purposes; and
- Entities having “significant influence” over one another.
Tax adjustments are required if the mismatch in the tax treatment of legal entities or financial instruments leads to:
- Double deduction – when the deduction of the same expense is claimed by both a Netherlands entity and a foreign associated enterprise; and
- Deduction without inclusion – when a deduction of the expense is claimed by the payer without a corresponding inclusion of the income in the hands of the recipient.
If a mismatch arises, it is neutralized by:
- Disallowance of deduction of expenditure under the hybrid arrangement to the extent that the corresponding income is not included in the tax base of the recipient or in case of double deduction; or
- Inclusion of the income arising from hybrid arrangement as taxable income to the extent that it is deductible for the payer.
On 1 October 2021, the Netherlands published Decree 2021-20014 with guidance on the applicability of hybrid mismatch rules relating to origin requirements and cross-border consolidation regimes. The origin requirement provides that the hybrid mismatch rules apply for deduction without inclusion mismatches only if the mismatch originates from a hybrid element i.e., the hybrid mismatch rules do not apply if the mismatch originates due to factors other than a hybrid element. However, the origin requirement does not apply to double deduction mismatches. For cross-border consolidation regimes, the decree clarifies that when such regimes result in a hybrid entity, then the hybrid mismatch rules apply if the tax treatment leads to a deduction without inclusion or double-counted income.
The Netherlands implemented the ATAD 2 reverse hybrid mismatch measures effective 1 January 2022. Henceforth, a partnership (transparent entity) established in the Netherlands or incorporated under Dutch law is liable for corporation tax in the Netherlands, where such partnership is treated as a transparent flow-through in the Netherlands and as an opaque (i.e. non-transparent) entity by the country where the controlling partner(s) is/are established. A Dutch partnership is subject to the new rules where at least 50% of the voting rights, equity interests, or profit rights are held directly or indirectly by an entity affiliated with the partnership and established in a jurisdiction that views the Dutch partnership as an opaque independent taxpayer. In order to avoid potential double taxation, the income of the partnership which is attributed to and taxed at the level of controlling partners in jurisdictions that treat the partnership as opaque are excluded from the tax base. A corollary of the requalification of a Dutch partnership as an opaque entity subject to tax in the Netherlands is that (a) the partnership becomes then in principle entitled to the benefits of Dutch tax treaties, and (b) a Dutch dividend withholding tax and/or conditional interest and royalty withholding tax obligation may arise for which the partnership must act as a withholding agent.
Further, effective 1 January 2022, the Netherlands amended the transfer pricing regulations to counter double non-taxation that may arise in cases where a country does not apply the arm's length principle or applies it differently than the Netherlands. The amendments provide for:
- The disallowance of a downward adjustment in the Netherlands if the Dutch taxpayer cannot establish that a corresponding upward arm's length adjustment is included in the foreign-related party's tax base by the other country; and
- The disallowance of a step-up in basis i.e., higher value of the assets as declared in the books (up to the arm’s length value) by a Dutch taxpayer which is actually acquired at a value below the arm’s length value from a related party in another country. The disallowance is made when the Dutch taxpayer is unable to establish that a corresponding adjustment for the arm’s length value is taken into account in the foreign-related party's tax base.
Tax Information Exchange Agreements (TIEAs) provide for the exchange of information on tax matters and the Netherlands has concluded TIEAs with several countries, including Andorra, Antigua, and Barbuda, Anguilla, Bahamas, Belize, Bermuda, Cook Islands, Costa Rica, Dominica, Gibraltar, Grenada, Guernsey, Isle of Man, Japan, Jersey, Liberia, Liechtenstein, Marshall Islands, Monaco, Montserrat, Samoa, St. Lucia, San Marino, Seychelles, Slovenia, St. Kitts & Nevis, St. Vincent and the Grenadines, the British Virgin Islands, the Cayman Islands, Turks and Caicos Islands, Uruguay.
In line with BEPS Action 5 and the Council Directive (EU) 2015/2376 on administrative cooperation in the field of taxation, the Dutch government has adopted various measures in its domestic laws, to enable the exchange of information on cross-border tax rulings and advance pricing arrangements. The exchange of information on past rulings started on 31 December 2017.
The Netherlands has adopted measures to implement the automatic exchange of financial account information with the EU Member States pursuant to Council Directive 2014/107/EU of 9 December 2014, which synchronized EU rules with the global standard for the exchange of information developed by the OECD under the Common Reporting Standard (CRS). The Netherlands is also a party to the OECD Mutual Assistance Convention and the related Multilateral Competent Authority Agreement, and as such exchanges financial account information under CRS with qualifying non-EU countries. Finally, The Netherlands concluded an Intergovernmental Agreement (IGA) with the US in 2013 for the implementation of the US Foreign Account Tax Compliance Act (FATCA).
The Netherlands has implemented the EU Council Directive on reporting cross-border tax planning arrangements. This requires the reporting of cross-border tax planning arrangements that can be used to avoid tax by taxpayers or intermediaries such as tax advisers, accountants, and financial institutions unless another intermediary has already reported the arrangements and provided proof that it has been reported or an intermediary has the right of non-disclosure.
However, the taxpayers may also need to report in certain cases, including where the intermediary involved in the arrangement is outside of the EU or has the right of non-disclosure or where there is no intermediary.
The DAC6 reporting applies to corporation tax, income tax, payroll tax, dividend tax, and inheritance and gift tax but does not apply to VAT (sales tax), customs duties, excise duties, and social insurance contributions.
The reporting requirements apply from 1 July 2020, with the disclosure of the reportable arrangements to be made within 30 days from the date when the arrangement is made available for implementation or is ready for implementation or where the first step to implementation has been carried out. The initial disclosure is, therefore, required by 31 August 2020. However, the reportable arrangements made during the period 25 June 2018 to 30 June 2020 are required to be reported by 31 August 2020.
The Dutch tax authority published updated user instructions in May 2022 for the use of the DAC6 data portal for reporting cross-border tax planning arrangements. The instructions state that the primary obligation to report an arrangement lies with the intermediary that designs, markets, makes available for implementation, manages the implementation of a reportable arrangement, or who, directly or indirectly provides advice with regard to these activities. Further, a person is said to be an intermediary if:
- It is resident for tax purposes in an EU Member State;
- It has a permanent establishment in an EU Member State through which the services with respect to the arrangement are provided;
- It is incorporated in, or governed by the laws of, an EU Member State; or
- It is registered with a professional association related to legal, taxation, or consultancy services in an EU Member State.
The instructions also provide guidance on the information to be included in the DAC6 report including but not limited to:
- The purposes and goals of the reportable arrangement;
- The transactions that are part of the reportable arrangement;
- The analysis of the reportable arrangement in relation to the hallmark under which it is reported; and
- The tax consequences of implementing or not implementing the reportable arrangement.
The Dutch tax authority on 30 June 2020 released guidance notes (Dutch language) on the practical application modalities and interpretative issues of the DAC6/MDR rules.
Further, a Dutch intermediary is exempt from reporting the DAC6 arrangement in the Netherlands where another EU Member State involved in the arrangement did not adopt the optional DAC6 deferral arrangement provided the reporting was shifted to and complied with by a Relevant Taxpayer (RTP) in the other Member State in accordance with the regular reporting timelines in that Member State by 31 December 2020.
Effective 1 January 2023, the Netherlands implemented the EU Council Directive (DAC7) which requires digital platform operators, located both inside and outside the EU, to report information about income earned by sellers of goods and services through their digital platforms. Digital collaborative platforms generally consist of any software, including a website or a part thereof, and applications, including mobile applications, accessible by users and allowing sellers to be connected to other users for the purpose of carrying out a relevant activity, directly or indirectly, to such users.
The reporting obligations apply to reporting platform operators. A reporting platform operator is an entity that provides a digital platform for facilitating a connection between buyers and sellers for carrying out a relevant activity and that meets any one of the following conditions:
- Is a resident for tax purposes in the Netherlands; or
- Has a registered office, place of management, or permanent establishment in the Netherlands; and
- Is not a qualified platform operator outside the EU.
A platform operator is considered a qualified platform operator outside the EU if:
- All of its activities qualify as relevant activities; and
- It is a tax resident, registered under the laws, or has its headquarters (including actual management) in a qualified jurisdiction outside the EU.
A relevant activity is an activity carried out for consideration including the following:
- Renting and leasing of immovable property, including residential and commercial property and parking lots;
- Provision of personal services;
- Sale of goods; and
- Renting of any mode of transport.
Reporting platform operators must collect and verify the data relating to new sellers by the end of each year (31 December) and the information must be reported to the tax authorities annually by 31 January of the following calendar year (the first reporting deadline is 31 January 2024). For existing sellers that are already registered on a digital platform on 1 January 2023, the collection and verification requirements must be completed by 31 December 2024 and reported to the tax authorities by 31 January 2025.
The information reported is automatically exchanged with the tax authorities of the concerned EU Member State for enforcing tax rules and ensuring tax compliance.
Failure to comply with the registration or reporting requirements may attract a levy of .
Joint audits in the form of administrative enquiries can be conducted jointly by the Competent Authorities of two or more EU Member States. One or more other Member States can request a joint audit and the Dutch tax authority must inform the applicant of its participation within 60 days of the receipt of the request. During the joint inspection, the official of the requesting authority together with the official of the Dutch tax authority will have similar rights as the Dutch tax authority, to enter the premises of the taxpayer, access the documents of the taxpayer and require the taxpayer to make a statement. The Dutch tax authority and the requesting authority must agree on the results of the audit and issue a joint audit report in writing. A copy of the final audit report is sent to the taxpayer within 60 days of its issuance.
Exit tax arises when a taxpayer transfers its fiscal domicile to another country. The tax is levied on the difference between the fair market value of the business and its book value (exit tax). The exit tax rules are generally aligned with the EU Anti-Tax Avoidance Directive (ATAD1). Under the rules, exit tax can be paid in instalments over a period of five years (10 years until 31 December 2018) when the transfer is to an EU/EEA Member State.
The Netherlands has listed a number of jurisdictions as low-tax or non-cooperative jurisdictions. The Dutch list is separate from EU blacklisting, but any jurisdiction which is blacklisted by the EU is automatically added to the Dutch blacklist if not already on that list. A low-tax jurisdiction is defined as one where the statutory profit tax rate is below 9%, while a non-cooperative jurisdiction is one on the EU list of non-cooperative jurisdictions. The tax implications of blacklisting are as follows:
- Triggering of the Dutch CFC rules with respect to entities established in the listed jurisdiction (see Sec. 13.2.);
- Application of a withholding tax on dividends, interest, and royalties paid to persons established in the listed jurisdiction from 1 January 2021 (from 1 January 2024 with respect to dividends, see Sec. 8.2.2.); and
- Non-issuing of tax rulings involving the listed jurisdictions.
The blacklists are updated in principle on 1 October of each year and apply to the following year (but because the EU schedules two updates per year to the EU blacklist, changes to the latter at a later time in the year should be automatically added to the Dutch list). The blacklisted jurisdictions for the year 2022 are:
|Anguilla||The British Virgin Islands||Turkmenistan|
|Bahamas||Guernsey||Turks and Caicos Islands|
|Bahrain||Isle of Man||Vanuatu|
|Barbados||Jersey||The United Arab Emirates|
|American Samoa||Anguilla (effective 12 October 2022)||Barbados (removed effective 26 February 2021)|
|The Bahamas (effective 12 October 2022)||British Virgin Islands (effective 14 February 2023)||Costa Rica (effective 14 February 2023)|
|Dominica (removed effective 12 October 2021)||Fiji||Guam|
|Marshall Islands (effective 14 February 2023)||Palau||Panama|
|Russia (effective 14 February 2023)||Samoa||Seychelles (removed effective 12 October 2021)|
|Trinidad and Tobago||Turks and Caicos Islands (effective 12 October 2022)||The US Virgin Islands|
On 8 July 2020, the Netherlands enacted legislation for the Ultimate Beneficial Ownership (UBO) Register, which applies to corporate and other legal entities. However, the registration requirements/obligations of legal entities will be effective from 27 September 2020.
Existing entities are required to submit the relevant UBO information to the Chamber of Commerce within 18 months, whereas newly incorporated entities are required to submit the UBO information at the time of registration of the entity.
Entities that are incorporated or established under Dutch law, including private limited companies (BVs), public limited companies (NVs), foundations, associations, mutual insurance associations, cooperatives, and limited partnerships, are required to register their beneficial owners with the Chamber of Commerce. However, Dutch-listed companies that are subject to separate disclosure requirements and their wholly-owned subsidiaries are exempt from the requirements.
UBOs for the purpose of the register generally include individuals with at least a 25% direct or indirect ownership interest in an entity.