28 February 2018
The Ministry of Finance issued on 23 February 2018 a new policy letter including clarifications on a new Dutch withholding tax on intragroup payments of dividends, interest and royalties and new Dutch substance requirements.
Introduction of Dutch withholding tax on intragroup payments of dividends, interest and royalties
It is proposed to introduce a withholding tax on intragroup payments of dividends (per 2020), interest and royalties (per 2021) to (i) jurisdictions with a low statutory tax rate and (ii) jurisdictions included on the EU black list of non-cooperative tax jurisdictions. The withholding tax on interest and royalties will be implemented two years sooner than previously announced and the scope has now been limited to intragroup payments. Intragroup payments are expected to be defined as payments to group entities located in low-taxed/EU black-listed jurisdictions.
New Dutch substance requirements
The policy letter further announces that Dutch holding companies and Dutch group financing companies ("DutchCo") will be subject to new Dutch substance requirements. DutchCo should meet these new substance requirements in order to a) prevent spontaneous exchange of information with relevant EU member states or tax treaty partners and b) be able to apply for a Dutch tax ruling. These so-called 'relevant substance requirements' were already introduced earlier for non-Dutch shareholders of a Dutch entity that hold a substantial interest (>5%) and wish to prevent the levy of Dutch CIT/dividend withholding tax. The additional substance requirements are (briefly summarized) as follows:
- DutchCo should incur wage costs of a minimum of EUR 100,000 for employees that perform relevant functions at the level of DutchCo. Employees may be hired from other group companies and the relevant wages may be allocated to DutchCo by means of a salary split arrangement. Employees should perform their activities in the Netherlands.
- DutchCo should have own office space at its disposal in the Netherlands during a period of at least 24 months. The office space should be equipped and used for the business/function it performs within the group. This may be substantiated by a contract for a 24-month lease.
The letter does not specifically state when the above relevant substance requirements will be introduced, but it is expected that this will happen by 1 January 2019.