On 15 September 2015, the Dutch government released its budget for 2016, containing the Tax Plan 2016, which includes certain amendments to Dutch tax law. One of the proposed amendments was the inclusion of an anti-hybrid rule in the Dutch participation exemption regime (“PER”). On 22 December 2015, the amendments were approved which results in  the new anti-hybrid rule becoming effective as of 1 January 2016.

The amendment of the PER concerns an implementation of the recently introduced anti-hybrid rule in the EU Parent-Subsidiary Directive in EU situations. However, the rule in the PER will not be limited to EU situations only, but also applies to non-EU situations. Herewith, the Netherlands takes into account recent developments in the so called base erosion and profit shifting (BEPS) project of the OECD.

The new anti-hybrid rule in the PER will no longer exempt 'interest on equity' (“IOE”) payments received by a Dutch tax resident company from Brazil. Under the Netherlands - Brazil tax treaty (the "Treaty") there are however, still options to reduce the Dutch taxation on IOE payments. Namely, by claiming a tax credit (including tax sparing credit), if available. We will further detail on this below.

For more information on IOE payments, we refer to paragraph 3. below.


Under the current PER, distributions of profits or payments received on hybrid instruments from participations qualifying under the PER are exempt from corporate income tax ("CIT") in the Netherlands, irrespective of whether these payments made, are deductible at the level of the participation.

The new anti-hybrid rule will deny the application of the PER (exemption of CIT) when the profits received consist of:

  1. Payments or remunerations derived from the participation – to the extent that they are legally or de facto, directly or indirectly – deductible from the taxable base of a profit based tax; or
  2. any other remuneration that is received as compensation for the (future) loss of payments or remunerations as mentioned under a. (e.g., sale of the right of receiving the payment or remuneration).

A similar rule will be introduced in the ‘participation credit regime' for so called passive subsidiaries as a result of which no credit shall be available.

Given the above, the amendments will have a very wide scope. Namely, it will result in the taxation of benefits in  the Netherlands when a participation is able to deduct these payments or remunerations from its taxable base. It is not relevant whether or not the deduction was granted intentionally by another jurisdiction (by means of its legal system). Further, it is not relevant whether the payments are factually deductible (by means of  a deduction limitation), nor, whether the participation is based in the EU or elsewhere is not decisive for this purpose.

The Dutch State Secretary for Finance explicitly mentioned that IOE payments will be subject to the anti-hybrid rule, which  allows the Netherlands to impose CIT on IOE payments received.


Currently, IOE payments received by a Dutch company are exempt from Dutch CIT when the PER applies. Under the anti-hybrid rule, the Netherlands will tax IOE payments from Brazil against the 25% Dutch CIT rate (the first EUR 200,000 of profits are taxed at a 20% rate).

In our view, IOE payments could be qualified as dividends (income from shares) under the Treaty. Brazil’s ability to impose a withholding tax on IOE payments will be limited to 15% under the Treaty. However, because of the non-application of the PER to IOE payments as of 2016, the Netherlands must provide a tax credit for the Brazil withholding tax in case all relevant conditions are met.

Under the Treaty, a tax credit (including tax sparing credit) of 20% and, under conditions, even 25% can be claimed. Depending on the case at hand, this credit could be sufficient to off-set all Dutch CIT due on the IOE payments received as of 2016.


Brazilian tax resident companies are – under conditions – able to deduct, interest on net equity (juros sobre o capital próprio,JCP) paid or credited to partners or shareholders from their corporate income tax base at Brazil’s long term interest rate (“TJLP”) which is currently 7% which will increase to 7,5% in the first quarter of 2016.

In a nutshell, IOE payments can be characterized as a compensation for shareholders. In case the Brazilian company is funded with third-party debt, the taxable profit would also have been reduced following the payment of interest. Through IOE, shareholders will thus be encouraged to fund their company through capital as well, instead of only with debt. Further, it serves other Brazilian tax objectives, such as mitigating the different tax treatment between equity and debt.

The IOE that a Brazilian company is able to deduct (against 34%) is limited to the greater of the following amounts:

  1. 50% of the accumulated profits or profit reserves or
  2. 50% of that year’s net-profit (before the deduction of IOE)

Under proposed Brazil legislation which should come into effect as of 1 January 2016, legal entities may deduct IOE paid or credited to shareholders at the TJLP rate on a pro-rata basis per day or 5% per year (whichever is lower).

On the payment or credit of IOE, 15% withholding tax is currently due in Brazil (18% as of 1 January 2016 under proposed Brazil legislation).


Under the changes to the Dutch PER, the Netherlands will no longer apply the PER to IOE payments received as of 2016.

We recommend you to identify whether there are IOE arrangements in place in your structure and subsequently analyze whether a tax credit can be claimed to ensure that Dutch CIT can still be minimized as of 2016. We are more than happy to discuss this with you, together with alternative funding scenario’s, if preferred.