In order to comply with the Directive’s newest obligations, the Dutch Minister of Finance includes an amendment of three provisions in the Budget: the Dutch participation exemption, the Dutch non-resident taxation rules and the Dutch dividend tax rules for cooperatives.
Dutch participation exemption: The Dutch tax exemption for income derived from qualifying participations, including dividends and capital gains, shall no longer be applicable to the extent the income from a qualifying participation (directly or indirectly) consists of expenses and payments that are deductible from the foreign participation’s taxable profits (i.e. a mismatch situation). The goal of this new provision is to ensure that income from hybrid instruments is taxed and to discourage the use of these types of instruments. However, contrary to the Directive which is limited to European transactions only, this provision has a world-wide scope. There is also no option to provide proof to the contrary that no abuse is sought. The scope of the new provision is broadly drafted so that it also includes the sale of hybrid instruments (to the extent the sale price does not relate to the principal amount).
Dutch non-resident taxation rules: Dutch corporation tax can be levied from a non-resident shareholder in a Dutch legal entity if it owns a “substantial interest” (generally an interest in the Dutch legal entity of 5% or more) with the main purposes, or one of the main purposes, to avoid income tax or dividend tax of another entity and it concerns an artificial arrangement. An arrangement is considered artificial if it is not put in place for valid commercial reasons which reflect economic reality. The main change in the wording of the non-resident taxation rules is the elimination of the so-called enterprise test. This is apparently done to bring the wording of this provision in line with the wording of the Directive. However, the parliamentary proceedings seem to indicate that current guidance on this point materially remains in force. One change to the current regime is that the immediate holder of a substantial interest should have sufficient substance in its jurisdiction, where this substance will be tested on the basis of the Dutch minimum substance requirements (we refer to our newsletter of January 2015).
Dutch dividend tax rules for cooperatives: Dutch dividend tax currently contains an anti-abuse provision for structures that interpose a cooperative with the aim to avoid dividend tax or income tax of another entity. The Budget proposes to bring this provision in line with the Directive wording: Dividend tax would be due on distributions by a cooperative if the cooperative owns a subsidiary with the main purpose, or one of the main purposes, to avoid dividend tax or foreign tax of another entity and it concerns an artificial arrangement. The parliamentary proceedings indicate that a cooperative will generally need to have people on its payroll and its own office space in order to avoid the characterisation as artificial arrangement.