The Netherlands to amend its dividend tax position
In September, the Dutch Government announced changes to the treatment of dividends paid by Dutch entities, which should eliminate the difference between Dutch cooperatives and Dutch private companies (BVs) and public companies (NVs). On 16 December 2016, the Dutch State Secretary for Finance clarified certain aspects of the original proposal. The letter doing so set out in particular the difference between so-called (active) “real cooperatives” and (passive) “holding cooperatives” and certain examples of situations where no dividend tax will be due. An internet consultation is announced for the first half of 2017 and this should be followed by a formal proposal of the change in law. The changes are intended to become effective as from 1 January 2018. However, given that Dutch general elections are due in March 2017, the outcome of these processes is highly dependent on the result of these elections.
We refer to our previous publication on the initial proposal published in September for further background information.
The December letter addresses questions on the proposed amendments of the Dutch dividend tax regime for cooperatives, BVs and NVs. The main clarifications are:
A (passive) holding cooperative will be defined as a cooperative which factual activities (feitelijke werkzaamheden) primarily, i.e. 70% or more, consist of the holding of participations or the direct or indirect financing of related entities and individuals.
If a cooperative is considered to be a (passive) holding cooperative, dividend tax is only due on distributions in respect of qualifying membership rights. Members will be qualifying if they own a “substantial interest” in the cooperative, i.e. generally an interest of 5% or more.
An anti-fragmentation rule will be introduced: the 5% threshold cannot be avoided in cases where smaller stakes are aggregated at a higher level. This is done through the introduction of the term “collaborating group” (samenwerkende groep).
Distributions made by (passive) holding cooperatives may still be exempt from dividend tax if they are made to the cooperative’s members that are resident in the European Union, the European Economic Area, or in a country with which the Netherlands has concluded a full double taxation treaty (including an exchange of information clause). This exemption applies on the condition that the membership in the cooperative is part of a business structure and there is no abuse involved.
The withholding exemption also applies to the shareholders in Dutch BVs and Dutch NVs for distributions made to members that are resident in the European Union, the European Economic Area, or in a country with which the Netherlands has concluded a full double taxation treaty. Again, this is subject to the absence of abuse. Whether or not the situation is considered to be abusive, will be linked to the principal purpose test of the OECD’s BEPS project.
It is intended that in non-treaty situations there will always be dividend tax payable, irrespective of whether distributions are made by a (passive) holding cooperative, BV or NV. No dividend tax should apply in case of (active) real cooperatives.
As this letter is only an announcement of a future change, these developments are subject to amendment. Details of the new proposed rules will likely to be published during the internet consultation in 2017. That said, it is clear that in its current form the proposals will have both negative effects, including a 15% dividend tax on distributions made by (passive) holding cooperatives to members in a non-treaty country, as well as positive effects, i.e. an exemption from dividend tax in non-abusive business structures in treaty situations for both cooperatives, BVs and NVs.
The changes are intended to become effective as from 1 January 2018. However, given that Dutch general elections are due in March 2017, the outcome of these processes is highly dependent on the result of these elections. Nonetheless, we do recommend reviewing existing structures that make use of cooperatives for the holding of participations in light of these proposed amendments. The amendments may also allow you to simplify your corporate structures. We are obviously more than happy to assist you in reviewing your structures to ensure their effectiveness.