On 20 September 2016, the Ministry of Finance announced its intention to introduce an exemption of dividend withholding tax ("DWT") for corporate shareholders resident in tax treaty jurisdictions and, at the same time, to limit the existing exemption for holding cooperatives, both to take effect from 1 January 2018. On 16 December 2016, the Ministry of Finance provided more guidance in response to questions from the Parliament.
Extension of the Dividend Withholding Tax Exemption
Currently, profit distributions by a BV or NV to an EU/EEA resident corporate shareholder owning at least 5% in the Dutch entity are exempt from DWT. This exemption is proposed to be extended to corporate shareholders that are resident in a jurisdiction with which the Netherlands has concluded a tax treaty. Although no legislative proposal has been published yet, the following requirements can be derived from the guidance:
- the shareholder must own an interest of at least 5% in the capital;
- the shareholder must be a company resident in a tax treaty country;
- the shareholder and the Dutch company must be involved in the same line of business activities; and
- the structure must not be considered abusive.
The last requirement will, for example, target the interposition of a holding company to avoid the Dutch DWT. More guidance should become available during the parliamentary proceedings.
Limitation of the Dividend Withholding Tax Exemption for Holding Cooperatives
Currently, profit distributions by a holding cooperative are not subject to DWT, unless the structure is considered abusive. The Ministry of Finance wants to end the different DWT treatment for entities that act as holding companies in international structures.
It is proposed that profit distributions to members that own at least 5% interest in a so-called 'holding cooperative' will become subject to DWT, unless the exemption mentioned in the previous paragraph applies. A cooperative will qualify as a holding cooperative if its activities consist 70% or more of owning interests of 5% or more in subsidiaries or, consist of directly or indirectly granting loans to related entities. Profit distributions by cooperatives other than holding cooperatives will remain outside the scope of DWT.
On the basis of the proposal, profit distributions by a holding cooperative to members that own 5% or more and are not resident in the EU/EEA or in a tax treaty jurisdiction will be subject to 15% DWT from 1 January 2018.
The amendment to the Dutch Dividend Withholding Tax Act requires a legislative proposal, which is expected in the course of 2017. The amendments are likely to enter into force on 1 January 2018. It is not yet known if the proposals will include any grandfathering of existing structures.
What should you do?
If your corporate structure includes a holding cooperative, we strongly recommend analyzing the potential impact of the revised rules with your tax counsel and take appropriate action, taking into account the proposed effective date of 1 January 2018.