Dutch government continues with dividend withholding tax proposal and announces conditional retroactive amendment to CIT fiscal unity regime
In this Tax Alert we will briefly highlight two topical Dutch tax matters very relevant to internationally active companies: the current status of the legislative proposal regarding Dutch dividend withholding tax rules for holding cooperatives and BVs/NVs and the announcement of the Dutch Ministry of Finance that the Dutch fiscal unity regime may be amended with retroactive effect to 25 October 2017, 11.00 hours.
1. Dutch dividend withholding tax
In our Tax Alert released following the latest Budget Day proposals of 18 September, we paid attention to the legislative proposal to reform Dutch dividend withholding tax in relation to cooperatives, aimed to enter into force as per 1 January 2018. The legislative proposal (a) subjects qualifying membership rights in so-called holding cooperatives to 15% Dutch dividend withholding tax and (b) extends the dividend withholding tax exemption – for qualifying shareholders and members of Dutch companies (BV’s, NV’s, etc.) and cooperatives respectively – to non-EU/EEA states with whom the Netherlands has concluded a double tax treaty that includes a dividend provision, provided the transaction/structure is not abusive. In the meantime (see our Tax Alert), on 10 October 2017, the new government announced to abolish the Dutch dividend withholding taxation (except in cases of abuse and except for payments to “low tax jurisdictions”). In response to questions of members of the Dutch parliament whether it is sensible to continue with enacting the legislative proposal in light of the announced abolishment of Dutch dividend withholding tax, the State Secretary of Finance stated that withdrawing the legislative proposal would imply a risk of triggering an infraction procedure for breach of state aid rules. Furthermore the State Secretary of Finance argued that the currently proposed amendments are expected to remain part of future legislation (i.e., when dividend withholding tax is abolished, and DWT is still to be withheld in case of abusive situations and for payments to “low tax jurisdictions”). We also refer to our Tax Alert following the release of the tax proposals included in the coalition agreement.
Please note that the parliamentary process is still ongoing, due to which amendments later in the parliamentary process cannot be ruled out.
2. Conditional retroactive amendment of Dutch fiscal unity regime
The Dutch Ministry of Finance recently announced that the Dutch fiscal unity regime may be amended with retroactive effect to 25 October 2017, 11.00 hours. The reason for the announcement is the release of the opinion of EU Advocate General Campos Sánchez-Bordana in the joint cases C-398/16 and C-399/16. In both cases the key question is to what extent the current Dutch fiscal unity regime is in breach of EU law (in particular the freedom of establishment) in light of any difference in treatment between companies belonging to fiscal unity, on the one hand, and companies not belonging to such a fiscal unity, on the other.
In response to the release of the opinion and to avoid a substantial negative impact on the budget, the Dutch Ministry of Finance announced that the Dutch fiscal unity regime is going to be amended with retroactive effect to 25 October 2017, 11.00 hours, if the European Court of Justice, in line with the Advocate General, in either C-398/16 or C-399/16 rules that the Dutch fiscal unity regime is in breach of EU-law. We note that at this stage no (draft) legislative proposal is released but merely a two-page high-level summary of the intended amendments. Thus the scope of the announcement is unclear. The summary explains that the fiscal unity regime should be amended such that in domestic fiscal unity situations, for the application of (1) art. 10a Dutch Corporate income tax act 1969 (“DCITA”, Dutch anti-base erosion rule), (2) Art. 13 DCITA (Dutch participation exemption regime), (3) art. 13L (anti excessively leveraged participations) and (4) art. 20a DCITA (anti-tax loss transfer rules), the fiscal unity regime should be disregarded. For example, disregarding the fiscal unity regime for the application of the Dutch anti-base erosion rules, could lead to the recognition of a tainted transaction that previously was disregarded under the fiscal unity regime, due to which the deduction of interest expenses could be limited.
The Dutch Ministry of Finance also indicated that the retroactive amendment of the fiscal unity regime now announced in principle is temporary, pending plans for a possible overhaul of the Dutch tax grouping regime in the future.
