Tax Alert: 9 September 2013

Changes in the Dutch tax policy

We would like to draw your attention to the recently announced changes in the Dutch international tax policy that may impact Uzbek operations of multinational companies (MNC) with Dutch entities in their holding/ project structure.  The Parliament of the Netherlands was provided with a letter proposing the following policy changes:

1. Substance requirements for conduit companies

Minimum substance requirements will henceforth apply to all resident companies that receive royalties and interest from foreign entities and pay royalties and interest to other foreign entities.  These requirements will be similar to those that have been in place for some years already for conduit companies that applied for a tax ruling:

  • At least 50% of the members of the board of directors with decision taking powers must be resident of the Netherlands.
  • The board members must be sufficiently competent and qualified to perform their tasks.
  • The (most important) board decisions must be taken in the Netherlands.
  • The (main) bank account of the Dutch company is in the Netherlands.
  • The bookkeeping of the Dutch company must take place in the Netherlands.
  • The Dutch company must comply with all its tax obligations.
  • The Dutch company must have its registered address and office in the Netherlands and is not treated as a tax resident of another country.
  • The Dutch company must have a level of equity which fits with its functions.

The company must account for this substance on an annual basis in its corporate tax return.  If the minimum requirements are not met, the Dutch Tax Authorities will exchange information with the source countries.

2. Exchange of information on Advance Pricing Agreements (“APAs”)

The Dutch Tax Authorities will proactively exchange information with foreign Tax Authorities about

the content of APAs concluded with Dutch resident conduit companies that receive and pass on interest and royalties if the MNC does not undertake more activities in the Netherlands than these conduit financing/licensing activities.

3. No Advance Tax Rulings (ATRs) and APAs for holding companies with insufficient substance

For reasons of available human resource capacity, the Dutch ruling team will henceforth only deal with ATR and APA requests of  Dutch resident holding companies if there is sufficient nexus in the Netherlands.  The requirements for sufficient nexus will be similar to the substance requirements for conduit companies mentioned above.

4. Anti-abuse measures in tax treaties with developing countries

The Dutch debate on international tax planning also addresses the fair treatment of developing countries.  To encourage fair treatment, the Netherlands will proactively reach out to developing countries (e.g. various African countries are mentioned) to propose the introduction of anti-abuse measures in the tax treaties concluded with these countries.  The Netherlands prefers clear Limitation-on-Benefits tests to general main-purpose tests.

Our observations

The approach of the Dutch government on exchange of information may bring to the attention of the Uzbek Tax Authorities certain tax planning schemes with participation of Dutch capital, which may increase the risk that such structures may be challenged by the Uzbek tax authorities.

We believe that MNCs with Dutch resident holding, financing or licensing companies should review the substance level in the Netherlands, and if necessary, adjust to the new requirements once these are published.

Additionally, we recommend monitoring the status of the Uzbek – Dutch tax treaty as the Netherlands may approach Uzbekistan with renegotiation proposal.