Dutch government clarifies consequences for investment climate of important CJEU decisions

On 15 June, the Dutch State Secretary of Finance (“State Secretary”) reacted to detailed questions from members of Dutch Parliament regarding the implications of six judgements of the Court of Justice of the European Union¹ (“Danish cases”, see our newsletter of 6 May 2019). In his reaction, the State Secretary clarified his opinion on the EU compatibility of Dutch tax laws and announced changes in the Dutch dividend withholding tax exemption and non-resident corporate income tax rules.   

EU compatibility of Dutch tax laws

• The State Secretary considers that the Dutch anti-abuse rules included in the Dutch dividend withholding tax exemption and the non-resident corporate income tax rules are broadly in line with the case law of the CJEU.
• Although the Danish cases provided some guidance on the concept of abuse, it has not become exactly clear under which specific circumstances an abusive situation exists under EU law. It is however not expected that much more often an abusive situation exists under the anti-abuse concept under EU law compared with the before-mentioned Dutch anti-abuse rules.
• Therefore, the State Secretary does not consider it necessary to take immediate measures to amend Dutch legislation and takes its time to carefully study the Danish cases and to prepare a proposal to change the Dutch tax legislation which will be published on Budget Day (i.e. 17 September 2019) that should enter into force as per 1 January 2020.
• The State Secretary announced to analyze the impact of the Danish cases on the Dutch participation exemption regime which may cause a change in law as well. The analysis will be published in the course of the year 2020.

Announced changes in Dutch legislation

• Currently the Dutch dividend withholding tax exemption and non-resident corporate income tax rules include specific substance requirements for intermediate non-resident holding companies. If these substance requirements are met by such intermediate holding company, no artificial arrangement exists which would result in the non-application of the anti-abuse rules under the Dutch dividend withholding tax exemption and non-resident corporate income tax rules.
• The State Secretary announced to amend the legal provision in the Dutch dividend withholding tax exemption and non-resident corporate income tax rules on substance. Instead of a safe harbor, the relevant substance requirements mentioned should now serve as decisive for the burden of proof. This also means that the Dutch tax authorities would have the possibility to demonstrate that an abusive situation exists even if the relevant substance requirements are met.
• According to the State Secretary an abusive situation may exist if (i) dividends received by the intermediary holding company are, very soon after their receipt, passed on to other entities; or (ii) the payroll expenses of the intermediary holding company are disproportionate for the income received by the intermediary company.

Impact tax rulings

• Current rulings regarding the application of the Dutch dividend withholding tax exemption and non-resident corporate income tax rules which were based on the substance requirements for intermediate holding companies remain valid until 31 December 2019.
• The conclusion of new advance tax rulings will be subject to the additional condition that the criteria of the Danish cases should be met.

Take away
Taking into account the envisaged changes in Dutch legislation announced by the State Secretary, we recommend to assess whether the announced changes in Dutch legislation may impact an investment structure and/or tax ruling and whether any action should be taken to mitigate adverse consequences, if any.

[1] The Danish cases T Danmark (C-116/16), Y Denmark (C-117/16), Luxembourg 1 (C-115/16), X Denmark (C-118/16), C Danmark (C-119/16) and Z Denmark (C-29916)