On 21 December 2017, the Dutch Senate approved certain changes to the Dutch Dividend Tax Act (DTA). The amendment thus enters into force as per 1 January 2018, eliminating the difference between Dutch cooperatives and Dutch private companies (BVs) and public companies (NVs) and extending the exemption for dividend withholding tax to owners in most tax treaty countries.
As of 2018, the DTA contains three main changes to the 2017 Dutch dividend tax regime:
- A general dividend withholding tax obligation will be introduced for qualifying membership rights in (passive) holding cooperatives;
- The current dividend withholding tax exemption for qualifying EU shareholders of BVs and NVs will be expanded to shareholders/members of BVs, NVs and cooperatives residing in qualifying tax treaty countries; and
- The anti-abuse provisions are brought in line with EU law, BEPS Action 6 and tax treaties.
We refer to our previous update on this topic for more details.
Notification versus tax return
One area that has not been widely published is the fact that the new DTA also contains a new compliance formality. This new formality (laid down in article 4, paragraph 11 of the DTA) requires a Dutch-resident entity making a dividend distribution to complete and file a confirmatory notification form with the Dutch tax authorities to notify them of such distribution in cases where no Dutch dividend tax is payable because of an exemption.
Through the form, the distributing entity confirms that each shareholder meets the requirements for the dividend tax exemption and the filing of the form should be done within one month after the distribution.
Please note that the above obligation does not apply to so-called active, real cooperatives, which entities remain out of the scope of the DTA.
In case dividend tax needs to be withheld, the distributing entity needs to fill out a regular tax return form and pay any tax due to the tax authorities within one month after the distribution.
Confirmation of exemption requirements
In order to apply an exemption of Dutch dividend tax in respect of dividend distributions to non-Dutch shareholders, the following cumulative requirements should be met:
- the recipient of the dividends is an entity with its tax residence in an EU/EEA jurisdiction, or a jurisdiction with which the Netherlands concluded a tax treaty; and
- the recipient of the dividends would have been in the position to apply the Dutch participation exemption1 to the received dividend income, if such recipient were a Dutch tax resident; and
- the recipient of the dividends is not an entity with a dual place of residence; and
- the recipient of the dividends is not similar as the Dutch fiscal investment institution or tax-exempt investment institution; and
- the recipient of the dividends is the beneficial owner of the dividends; and
- the recipient of the dividends complies with the general anti-avoidance rule (GAAR).
The (new) GAAR applies if two cumulative conditions are met:
- the recipient of the dividends holds the shareholding in the Dutch distributing entity with the purpose or one of the main purposes to avoid Dutch dividend tax being due by an individual or another entity; and
- the set-up is considered an artificial arrangement or transaction, or series of arrangements or transactions, where such artificial arrangement(s) or transaction(s) can consist of multiple steps and/or elements.
Note that (an) arrangement(s) or transaction(s) shall not be considered artificial when based on sound business reasons which reflect economic reality.
When completing the notification form, the distributing entity needs to confirm to the Dutch tax authorities that its shareholders are not caught by the above GAAR requirements.
Although we applaud the extension of the Dutch dividend tax exemption, the addition of a new administrative requirement puts another burden on Dutch tax payers and their shareholders. A point of concern is whether distributing entities are always in a position to confirm the absence of the GAAR.
We would be pleased to assist you with checking whether a notification form must be filed as well as with the actual preparation and filing of the notification form.
Or participation tax credit, as the case may be.
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