Due to the adoption of the amended EU Parent-Subsidiary Directive into Dutch law, more specifically the EU Parent-Subsidiary Directive's general anti-abuse rule (GAAR), certain currently existing Advance Tax Rulings (ATRs) will potentially cease to be valid as of January 1, 2016. Pursuant to these amendments to Dutch tax law it is required for foreign intermediary holding companies, with an interest in a Dutch entity, to fulfill certain substance requirements. On November 3, 2015 the Dutch State Secretary of Finance issued a Decree in which he approves for an adaption period - subject to the satisfaction of certain conditions - until 1 April 2016 for foreign intermediary holding companies to satisfy the substance requirements. In case the substance requirements are met before 1 April 2016, currently existing ATR's, which scope is to cover the legislation that will be changed as per 1 January 2016, do not cease to be valid. Please note that no provision has been made for transitional law, which means that any distributions as from 1 January 2016 until the moment that the substance requirements have been met, will in principle be subject to tax in the Netherlands.

Implementation EU Parent-Subsidiary Directive GAAR

Currently existing ATR's contain a clause based on which an ATR will be null and void after a relevant legislative change. As per 1 January 2016 the amendments to the EU Parent-Subsidiary Directive with regard to the GAAR will be implemented in article 17, paragraph 3 (b) Corporate Income Tax Act Corporate Income Tax Act (CITA) and article 1, paragraph 7 Dividend Tax Act (DTA). As a result of these amendments, it is significant in certain situations whether a foreign intermediary holding company that holds a substantial interest in a Dutch entity, or a direct membership in a Dutch cooperative, meets the substance requirements as referred to in section 8a - which in its turn refers to the Annex - of Decree DGB 2014/3999 (the ATR Decree);

  • At least 50 percent of the statutory (and decision making) directors of the Dutch company should be residents of the Netherlands;
  • The Dutch resident directors have the required professional knowledge to perform their duties satisfactorily. Their duties should at least include (i) decision making on the transactions of the Dutch company within the framework of normal group influence and (ii) taking care of a proper execution of the transactions to be entered into; 
  • The company has qualified personnel at its disposal to properly execute and register the transactions entered into (this may also be employees from third parties, such as trust companies);
  • Board decisions are made in the Netherlands;
  • The most important bank accounts are kept in the Netherlands;
  • company bookkeeping must take place in the Netherlands;
  • The company’s business address is in the Netherlands and the company is not treated as a tax resident of another country;
  • The company complies with all its tax reporting obligations in the Netherlands;
  • The company runs a real risk with respect to its financing, licensing or leasing activities; and
  • The company has an equity at risk that corresponds to the functions performed.

Current Dutch anti-abuse rule for foreign shareholders

Under the current Dutch corporate income tax anti-abuse rules of article 17, paragraph 3 (b) CITA, a foreign entity with a substantial interest in a Dutch entity, is subject to Dutch corporate income tax as a non-resident taxpayer on the dividends and capital gains derived from the Dutch entity if (i) the interest is held with the main purpose or one of the main purposes to avoid Dutch personal income tax or dividend withholding tax in the hands of another person and (ii) such interest is not attributable to the business enterprise of the foreign entity (the so-called "business enterprise test").

New wording

The wording of article 17 paragraph 3 (b) CITA will be modified in order to bring the article in line with the wording of the GAAR, whereby the business enterprise test as such will in principle be abolished.

Under the new wording a foreign entity is only subject to Dutch corporate income tax as a non-resident taxpayer if (i) its shareholding is held with the main purpose or one of the main purposes of avoiding Dutch personal income tax or dividend withholding tax in the hands of another person (subjective test) and (ii) there is an arrangement or a series of arrangements that are not genuine. For purposes of the last condition an arrangement or a series of arrangements is considered not genuine if and to the extent that they are not put into place for valid commercial reasons which reflect economic reality (objective test).

Valid commercial reasons

Whether an arrangement has been put into place for valid commercial reasons (objective test) will depend on the substance at the level of the shareholder. Valid commercial reasons may inter alia be present if the shareholder (i) conducts a material business enterprise and the shareholding is part of the business enterprise's assets, (ii) is a top holding company that carries out material management, policy and financial functions for the group or (iii) functions as an intermediary holding company within the group structure. In case of an intermediary holding company, an additional requirement applies pursuant to which such holding company should have substance within the meaning of section 8a of the ATR Decree.

Intermediary holding company as member of a Dutch cooperative

A Dutch cooperative is not subject to Dutch dividend withholding unless the anti-abuse rules (which can be compared to the anti-abuse rules of article 17, paragraph 3 (b) CITA) apply. Also the wording of these dividend withholding tax anti-abuse rules in article 1, paragraph 7 DTA will be modified whereby also the business enterprise test will in principle be abolished and replaced by an objective test.

For the objective test it needs to be determined whether the Dutch cooperative conducts a material business enterprise. Furthermore, valid commercial reasons may also be present if the relevant member in the Dutch cooperative (i) conducts a material business enterprise and the membership right is part of the business enterprise's assets, (ii) is a top holding company that carries out material management, policy and financial functions for the group or (iii) functions as an intermediary holding company within the group structure. Again, in case of an intermediary holding company an additional requirement applies pursuant to which such holding company should have substance within the meaning of section 8a of the ATR Decree.

Adaption period for currently existing ATRs

As a result of the above amendments in Dutch tax law, currently existing ATR's which scope is to cover article 17, paragraph 3 (b) CITA and article 1, paragraph 7 DTA, will in principle cease to be valid after 1 January 2016 as far as it concerns structures in which an intermediary holding company does not fulfill the minimum substance requirements for intermediary holding companies within the meaning of section 8a of the ATR Decree.

By means of the Decree of November 3, 2015 the State Secretary approves under certain conditions that ATR's covering article 17, paragraph 3 (b) CITA and article 1, paragraph 7 DTA will remain valid after the implementation as per 1 January 2016 if the following conditions are satisfied:

  1. Interested parties must send a written notification to the APA/ATR team of the Dutch Tax Authorities/Large Enterprises (Rotterdam office) before 1 January 2016.
  2. In that notification, the interested party must express its intention to satisfy the substance requirements before 1 April 2016.
  3. In that notification, the interested party must furthermore state its acknowledgment that its ATR will cease to be valid on 1 January 2016 if the substance requirements of section 8a of the ATR Decree are not satisfied before 1 April 2016.
  4. The interested party must properly notify the APA/ATR team of the Dutch Tax Authorities/Large Enterprises (Rotterdam office) before 1 May 2016 as to whether the substance requirements of section 8a of the ATR Decree have been satisfied.

No transitional law

If the above conditions are satisfied the relevant currently existing ATR will not cease to be valid. Please note that since no provision has been made for transitional law, dividend distributions made in connection with substantial interests or alienations of substantial interests or the proceeds received from membership rights in cooperatives in the period between 1 January 2016 and the date on which the substance requirements are satisfied will be subject to tax based on the applicable provisions.