Jan Gerrand
Shie Yee Au Yeung
Introduction
The Netherlands has a longstanding and well-developed ruling practice, whereby Dutch taxpayers can obtain certainty in advance from the Dutch tax authorities on specific tax matters. The possibility to obtain certainty in advance is of great importance for taxpayers and has contributed to a stable and beneficial business climate in the Netherlands.
Although the Dutch ruling practice is clearly important for the Netherlands, it has at the same time recently also been subject to a public debate. In particular, the issuance of tax rulings to multinationals with limited activities in the Netherlands has led to the political discussion of whether the issuance of tax rulings in the existing manner and form can continue or should cease to exist, since these tax rulings facilitate tax avoidance by the taxpayer. In view of these discussions, the Netherlands has recently evaluated and updated its ruling practice in a newly published decree on the Dutch ruling practice for international tax rulings (the ‘Decree’).
The new ruling practice entered into force from 01 July 2019; however, existing rulings will continue to be applicable for the remaining period as concluded in the ruling.
Decree on New Ruling Practice
The Decree provides for several new items, of which the most important are the following:
1. Requirements and Economic Nexus
In order to combat tax avoidance, the Decree stipulates that taxpayers can no longer obtain a tax ruling if the taxpayer has insufficient ‘economic nexus’ with the Netherlands. This economic nexus requirement replaces the list of substance requirements that taxpayers needed to meet, prior to 01 July 2019, in order to obtain a tax ruling with the Dutch tax authorities. The Decree explains what is meant by the economic nexus concept. Relevant is that the group of which the taxpayer forms part should perform economic operational activities in the Netherlands for the account and risk of the taxpayer in the Netherlands. These activities conducted in the Netherlands must be in proportion to the functions of the enterprise of the taxpayer.
Furthermore, the taxpayer should have enough personnel available in the Netherlands that is relevant for the activities carried out in the Netherlands. The Decree further stipulates that no tax ruling will be granted to the taxpayer if either of the following applies:
- The only or the decisive purpose of the transaction is to reduce Dutch or foreign taxation; or
- The transaction involves a country that is included on the Dutch blacklist for low-taxed companies or the EU blacklist for non-cooperative jurisdictions. In this regard, a jurisdiction is considered low-taxed if it levies no profit tax or a profit tax with a statutory rate of less than 9%.
Due to the introduction of the abovementioned requirements, it can be expected that it would be more difficult for taxpayers to obtain a tax ruling in the Netherlands – especially since the exact scope of the economic nexus requirement and the tax avoidance requirement have not been defined. In any event, it is clear that taxpayers can now no longer obtain a tax ruling on structures such as the famous ‘CV-BV structure’ or the ‘Double Irish Dutch Sandwich structure’ since these structures are clearly aimed to reduce Dutch or foreign taxation.
2. Transparency
Prior to the publication of the Decree, the Netherlands has already committed to exchange information on tax rulings in compliance with the OECD BEPS Action 5 Report. In practice, such an exchange of information implies that the Dutch tax authorities would exchange information on tax rulings to the tax authorities located in the other relevant jurisdictions. To further increase transparency, the Decree states that tax rulings with an international character will now also be published in the form of a short anonymous summary.
In addition, if a pre-consultation with the Dutch tax authorities does not result in a tax ruling, the Decree states that a summary will also be published explaining why a tax ruling was not issued. The publication of tax rulings is quite revolutionary, given that the Dutch government has until now strongly defended the privacy of the taxpayer and has been an opponent of making tax rulings publicly available. The publication of the summary of the tax rulings was, however, accepted by the Dutch government, under the strict condition that the information provided by the taxpayers is treated as confidential by the Dutch tax authorities and that the summaries cannot be traced back to the individual taxpayer.
3. Process
Prior to 01 July 2019, rulings were dealt with by the ‘APA/APA Team’, a specialised team within the Dutch tax authorities that focuses on the issuance of advance pricing agreements (‘APA’s’) and advance tax rulings (‘ATR’s’). w As per 01 July 2019, a new body – the International Fiscal Certainty Board (College voor Internationale Fiscale Zekerheid) – has been introduced which will be responsible for the central coordination of rulings in order to ensure unity in, quality of, and adherence to the ruling practice. Although this new body has been introduced, the local tax inspectors or the International Fiscal Certainty Team – the previous APA-ATR team – remain authorised to deal with rulings. New tax rulings concluded after 01 July 2019 require the signature of the local inspector/International Fiscal Certainty Team, as well as a second signature, from the new International Fiscal Certainty Board.
Conclusion and Observations
In view of the requirements as stated in the Decree, it can be expected that it will be more difficult for taxpayers to obtain a tax ruling with the Dutch tax authorities. It should be noted however that the Dutch tax legislation itself has not changed due to the Decree and therefore the Dutch tax consequences should remain the same after 01 July 2019.
Although for some taxpayers it may therefore no longer be possible to obtain a tax ruling, this does not automatically mean that the structure itself no longer works from a Dutch tax perspective. If the taxpayer meets the conditions under Dutch tax law (taxpayers should bear in mind that these rules are also changing due to the introduction of the EU Anti-Tax Avoidance Directive 2 and/or the Multilateral Instrument) but they do not meet (all of ) the strict requirements under the Decree, taxpayers may also decide to rely on tax opinions issued by the Dutch tax advisor.
XLNC MAGAZINE | No. 04 | November 2019