Netherlands tax ruling practice to change as of July 1

By Jian-Cheng Ku and Rhys Bane, DLA Piper Nederland NV

The Dutch government on April 23 published a draft decree and guidance proposing higher standards for obtaining advance tax rulings and advance pricing agreements on international tax matters from the Dutch tax authorities. New transparency rules and procedures for Netherlands tax rulings were also proposed.

The Dutch House of Representatives is expected to discuss the proposals on June 4 and the rules are expected to take effect July 1. Given this, there will be only a short period of time available to implement the final rules.

There currently is no clarity on whether international tax ruling requests that have been filed before July 1, 2019, must meet the requirements set out in the old tax ruling decrees, or whether the requirements of the new tax ruling decree must be met. It is likely, however, that this question shall be raised (and answered) on June 4, 2019, when the Dutch House of Representatives discusses the rules

Netherlands tax ruling process

The Netherlands tax ruling overhaul is consistent with announcements made November 2018. Changes will be made in three areas: the ruling process, the content of tax rulings, and transparency of the ruling practice.

The new Netherlands tax ruling process will be coordinated by the College Internationale Fiscale Zekerheid.  This new body will function as the principal point of contact for all tax rulings considered ‘international’.

Companies considering investing in the Netherlands may contact the Netherlands’ liaison for potential foreign investors, the Aanspreekpunt potentiële buitenlandse investeerders or ABPI, which is a part of the College Internationale Fiscale Zekerheid.

Dutch economic nexus

Under current law, tax rulings are generally granted if a fixed list of substance requirements are met. Going forward, a multinational group seeking to obtain a tax ruling must have economic nexus with the Netherlands.

In addition to the requirement of economic nexus, no ruling will be granted if avoiding Dutch or foreign tax is the sole or main motive for the transaction(s) or if the requested ruling covers direct transactions with entities established in jurisdictions that are on the Dutch list of low-tax jurisdictions.

Content of Netherlands tax rulings

Under the new rules, the following topics can be the subject of a tax ruling.

• The application of the participation exemption
• The qualification of hybrid financial instruments or hybrid entities in international structures
• The application of the controlled foreign company rules
• The presence or absence of a permanent establishment in the Netherlands
• The presence or absence of a permanent establishment in another jurisdiction of a company that is a tax resident of the Netherlands
• The application of the substantial interest non-resident taxation rules
• The presence of a permanent establishment on Bonaire, Sint Eustatius or Saba (the Caribbean Netherlands) of a company that is a tax resident of Aruba, Curacao, or Sint Maarten
• The application of the Dutch enterprise non-resident taxation rules
• The application of the holding cooperative rules for the Dutch dividend withholding tax
• The application of the domestic withholding exemption of the Dutch dividend withholding tax
• The application of the principal purpose test in tax treaties as it regards dividends, interest, and royalties
• The allocation of assets and/or risks to permanent establishments
• The conclusion of an APA
• The question of whether companies are associated enterprises
• The question of whether an activity qualifies as an intercompany service or whether the activity qualifies as a shareholder activity.

Greater transparency

Also, going forward, the government will publish summaries of all tax rulings. These summaries will contain a brief description of the facts and circumstances, the most important conclusions of the transfer pricing reports or other documents, if applicable, the legal analysis, and the conclusion of the legal analysis.

The summaries will anonymized so it is not possible to deduce who the taxpayer is. These summaries will be published on a Dutch government website.