The Netherlands: All Change to the Holding Company Regime
The Netherlands implemented ATAD I in December 2018 thereby introducing CFC rules, an exit tax, interest deductibility restriction and a GAAR. It introduces ATAD II from 1 January 2020 to include hybrid and other mismatches, a step that broadly harmonises the Dutch and UK holding company regimes. However, further changes to the tax regime (discussed below) will, in our view, see the Netherlands playing second fiddle to the UK when it comes to choice of holding company location.
The Dutch Government have been concerned with the application of their withholding tax (WHT) regime for a couple of years now. They originally proposed to abolish WHT on cross border dividends where the dividend was paid to a company resident in a country within the EU, or where the country had a double taxation agreement with the Netherlands and if the dividend was part of a chain, the intermediate holding company also had sufficient substance. However, following the “Danish cases” where the ECJ considered the question of beneficial ownership and WHT, the Netherlands has amended the “safe harbour” provided by the economic substance rules. It will now be possible for the Dutch authorities to argue (where they have the appropriate evidence of course), that a dividend is “abusive” and subject to WHT, even if the recipient has the relevant economic substance.
The changes to the WHT rules detailed above will enter into force from 2020, whilst the Dutch propose to bring in WHT on certain intragroup interest and royalty payments from 1 January 2021. Under this proposal, WHT will be deducted from intragroup interest or royalty payments where the recipient is resident in a country with a tax rate of less than 9%, or is on the EU blacklist of tax havens. If an intermediate holding company in a “high tax” jurisdiction is interposed, then there is a similar rule to the dividend WHT rules. Where the interposed holding company has sufficient economic substance WHT will not be due, unless the Dutch authorities can show that the structure is abusive.
In addition to WHT, non-Dutch resident individual and corporate shareholders with a substantial shareholding in a Dutch entity (i.e. 5% or more) are subject to 25% income or corporate tax, respectively.
This can be mitigated where the conditions of a relevant double tax agreement (DTA) are met, but from 1 January 2020, when most Dutch tax treaties will include a Principle Purpose Test (PPT), corporate shareholders could be exposed to 15% withholding tax plus 25% corporate tax on dividends.
It is also proposed that, from 1 January 2022, Dutch law will be amended to tax a shareholder (even if non-Dutch resident) on a loan from a Dutch company at up to 51.75% income tax rates.
With a participation exemption for dividends and gains from substantial shareholdings that is arguably more complex than the UK’s substantial shareholding exemption, has the Dutch holding company had its day?