Netherlands overhauls international tax ruling practice

By Jian-Cheng Ku, Robin Theuns, & Rhys Bane, DLA Piper Nederland N.V.

The Dutch State Secretary of Finance on November 22, 2018, issued a letter including details on the imminent overhaul of the Dutch international ruling practice as announced in February of 2018.

The letter contains an overview of measures to be taken and the expected implementation date, i.e. July 1, 2019.

Measures mentioned in the letter are mainly aimed at increasing transparency on the issuance of tax rulings and improving the quality of the ruling practice for companies bringing actual activities to the Netherlands. In that light, the letter mentions new requirements that need to be met by taxpayers wishing to obtain an international tax ruling.

Transparency

International tax rulings have become subject to increased public scrutiny over time. The fact that tax rulings are confidential generally prompts speculation on their contents. In an attempt to increase transparency towards the general public, a number of measures have been announced:

• The publication of anonymous summaries of all new international tax rulings (that should not be traced back to individual taxpayers);
• Publication of an annual report with more general information on the international ruling practice and all international rulings issued (not limited to APAs and ATRs); and
• The continuation of periodical inspections of tax rulings by a committee of independent experts, covering all tax rulings with international aspects.

Process

Central coordination within the Dutch tax authorities on issuance of international tax rulings will be increased. A new independent co-signing team (the ‘Board of International Tax Assurance’) will be set up, co-signing every tax ruling with international aspects granted to taxpayers.

Substance

As the Dutch government does not want to facilitate so-called (undefined) ‘letter-box-companies’, a number of measures shall be taken to make sure these types of companies cannot obtain a tax ruling. These measures are as follows:

• The current (exhaustive) list with substance requirements will be replaced by an open standard. Taxpayers can only get a ruling if they have ‘economic nexus’ with the Netherlands. This is the case if the taxpayer’s group has operational activities in the Netherlands. The extent of the operational activities required for obtaining a ruling depends on the activities performed, personnel employed and expenses incurred by the entire group;
• The Dutch tax authorities will pay more attention to the aim of tax structures. If the main motive for setting up a structure via the Netherlands is the saving of Dutch or foreign taxes, or if the structuring involves non-cooperative jurisdictions, no tax ruling will be granted;
• The validity of tax rulings with international aspects will be maximized at five years, which may be extended to a maximum of 10 years under extraordinary circumstances;
• Tax rulings with international aspects will all be granted in the form of a standard template.

We note that the latter two points were already part of standard Dutch ruling practice. It is also important to note that the increased substance requirements will only be applied when applying for a tax ruling. These requirements will not replace references in other provisions referring to ‘substance’. More guidance is to follow.