Amendments to Dutch tax ruling practice announced by the Dutch government
Introduction
On 6 July 2023, the Dutch State Secretary of Finance published a letter in which he announces the implementation of new measures to update the Dutch tax ruling practice. The Dutch State Secretary of Finance announced that he wants to publish the updated Dutch tax ruling practice at the beginning of October 2023.[1]
Current tax ruling practice
The current tax ruling practice (Advance Pricing Agreement and Advance Tax Ruling) is in force since 1 July 2019 and gives a Dutch taxpayer the possibility to have certainty in advance on the Dutch tax aspects of certain transactions or structures for a maximum period of 5 financial years. The taxpayer requesting a ruling needs to be part of a concern that has so-called “economic nexus” in the Netherlands, meaning that its presence needs to relate to operational activities in the Netherlands that are carried out for the benefit and the risk of the taxpayer. Further, the ruling will not be granted if: a) the sole or primary purpose of the transaction is to save Dutch or foreign taxes; or b) the direct transaction relates to an entity or a permanent establishment located in a jurisdiction that has been included on the so-called ‘Dutch blacklist’ of low-taxed jurisdictions and non-cooperative jurisdictions.[2] This list is updated annually in December.
In case of an Advance Tax Ruling (ATR) request, the information provided should generally include a detailed description of the relevant facts and circumstances, an overview of all parties, jurisdictions and financial years involved, a brief historical and organizational overview of the structure or the concern, the tax position a taxpayer wishes to take and a statement that the beneficial owners / directors involved with the structure are not resident in a jurisdiction on the ‘EU-sanction list’. Typically, Dutch taxpayers request the confirmation on:
- the application of the Dutch participation exemption
- the qualifications of hybrid entities or instruments for Dutch tax purposes
- the application of the Dutch CFC rules
- the (non-)applicability of Dutch non-resident tax rules
- the Dutch dividend withholding tax position of the taxpayer
- the existence of inbound or outbound permanent establishments (“PE”s) and profit allocation to such PE.
Changes announced in the letter
In the letter sent to the Dutch parliament, the Dutch State Secretary of Finance indicates that he wants to amend the ruling practice in such manner that taxpayers can also obtain certainty in advance if they want to dismantle a structure.
In the event that a taxpayer dismantles the existing structure which has an element of avoiding Dutch or foreign taxes and includes flow of funds to affiliated entities in low-taxed jurisdictions and non-cooperative jurisdictions, the Dutch tax authorities are willing to obtain certainty in advance.
The Dutch tax authorities will not give certainty in advance in the situations whereby dismantling the structure results in non-taxed or low-taxed proceeds in other jurisdictions, against which depreciation potential arises in the Netherlands. Furthermore, rulings will not be granted in situations whereby after the dismantling of the structure, there are still transactions with affiliated entities established in states that are included on the Dutch blacklist of low-taxed jurisdictions and non-cooperative jurisdictions.
Provided that the requested advance certainty relates to third-party transactions when applying the innovation box or the tonnage tax scheme or to the tax consequences of third-party transactions when concluding an Advance Pricing Agreement, the condition that no rulings are concluded for direct transactions with states and jurisdictions listed in the Dutch blacklist of low-taxed jurisdictions and non-cooperative jurisdictions does not apply.
Furthermore, in the letter it is mentioned that a provision will be included in bilateral and multilateral APAs stating that transfer pricing adjustments from countries that are not involved in the bilateral or multilateral APA may be taken into account
Conclusion
The proposed amendments to the Dutch ruling practice seem to fit in the cooperative mindset of the Dutch tax authorities. For many years, the Dutch tax authorities think along with taxpayers where they can support the idea of giving upfront certainty to (foreign) taxpayers in the form of an ATR or APA. This is evidenced by the fact that in 2022, 559 ATR/APA requests were received.
For more information please contact Gabriël van Gelder
[1] On 7 July 2023 the Dutch government has collapsed and therefore it must be waited how and whether the Dutch government will proceed with these anticpated measures.
[2] Anguilla, Bahama’s, Bahrain, Barbados, Bermuda, British Virgin Islands, Cayman Islands, Fiji, Guernsey, Guam, Isle of Man, Jersey, Palau, Panama, Samoa, Trinidad and Tobago, Turkmenistan, Turks and Caicos Islands, the United Arab Emirates, the US Virgin Islands, US Samoa and Vanuatu.