On Friday, February 23, 2017, the Dutch government announced its intention to reduce the corporate tax rate to 21% and to abolish dividend withholding tax within a multinational group. The rate reduction for corporate tax matches the recently adopted U.S. tax rates. The elimination of withholding tax on dividends within a multinational group incentivizes the use of the Netherlands as an entrepot into the E.U. by residents of non-E.U. jurisdictions. Residents of the U.S., China, and possibly the U.K. are potential beneficiaries.
In addition, the Dutch government announced that it will adopt additional substance requirements for Dutch holding companies, financing companies, and licensing companies. Currently substance is demonstrated by having Dutch-resident directors comprise at least one-half the board membership and bookkeeping performed in the Netherlands. When effective, companies must incur salary costs of 100,000 or more and must have office space that is actually used to carry on its functions.
Finally, the Dutch government confirmed that the Netherlands will adopt Model A of the C.F.C. rules under the E.U. Anti-Tax Abuse Directive. Model A is similar in approach to the U.S. Foreign Personal Holding Company rules of Subpart F. Certain items of "movable" income or passive income will be included in the tax base of a Dutch resident unless the C.F.C. is actively engaged in a business that generates the types of income covered or the items of tainted income comprise not more than one-third of all income of the C.F.C. Tainted income includes the following:
- Capital gains on shares
- Leasing income
- Insurance income
- Banking income
- Re-invoicing income