More stringent substance requirements for financial service companies as from 1 January 2021

As per 1 January 2021, the substance and disclosure requirements for Dutch financial service companies included in the Decree to the International Assistance with Levying Taxes Act (Uitvoeringsbesluit internationale bijstandsverlening bij de heffing van belastingen) (Decree) will be made stricter. Pursuant to these changes, financial service companies shall have to comply with the following additional substance requirements:

• to have an office space that is used for a period of at least 24 months; and
• incur at least EUR 100,000 in salary expenses.

Please find below more information on the background of the substance and disclosure rules for Dutch financial service companies, the list of substance requirements effective as per 1 January 2021 and an update on possible substance and disclosure rules for substance lacking Dutch resident corporate income taxpayers that act as an intermediary holding company and which apply the Dutch participation exemption.

Background
As per 1 January 2014 certain statutory disclosure requirements for financial service companies have been introduced in Dutch tax laws. In case a qualifying Dutch corporate income tax (CIT) payer does not meet one or more of the substance requirements it has to disclose this information in its CIT return. This information will be exchanged by the Dutch tax authorities to the relevant source country. Failure to comply with any of these information requirements is an offence, which may result in a penalty being imposed amounting to maximum EUR 20,750 (applicable in 2020) in case of premeditation or gross negligence. A qualifying CIT payer is any CIT payer of which the activities mainly (70% or more) consist of the direct or indirect receipt and payment of interest, royalties, rent or lease terms, in any form whatsoever, from and to non-resident entities which belong to the same group as the taxpayer. For the assessment of the 70% criteria, holding activities are not taken into account.

Substance requirements for financial service companies
As of 2021, the substance requirements for Dutch financial service companies will be as follows:

• At least half of the statutory (and decision making) board members of the taxpayer are a resident or should be factually located in the Netherlands;
• Required professional knowledge of the Dutch resident board members in order to perform their duties satisfactorily, which duties in any case include decision making, based on the own responsibility of the tax payer and within the context of normal group involvement, with respect to the transactions to be concluded, as well as taking care of a proper execution of the transactions to be entered into;
• Qualified personnel at the disposal of the taxpayer that has to properly execute and register the transactions entered into;
• Board decisions are taken in the Netherlands;
• Main bank accounts are managed and kept from the Netherlands;
• Bookkeeping takes place in the Netherlands;
• Availability of office space that is used for a period of at least 24 months;
• Incur at least EUR 100,000 in salary expenses;
• With respect to its loans or legal relationships and the corresponding loans or legal relationships from which the payments or interest, royalty, rent or leasing instalments originate, the taxpayer runs a real risk within the meaning of article 8c paragraph 2 of the Dutch corporate income tax act (which entails that equity amounting to at least the lowest of 1% of the outstanding loans or EUR 2,000,000, and that it can be substantiated that this amount is available and will be affected in case the risks materialize);
• The taxpayer at least has an equity that corresponds to the required real risks as mentioned above in accordance with its functions.

Dutch participation exemption – possible information exchange for substance lacking intermediary holding companies 
Recently, Dutch State Secretary for Finance announced the Dutch government will further investigate whether substance and disclosure requirements will be introduced for substance lacking intermediary holding companies which apply the Dutch participation exemption which would be similar to the above described rules for Dutch financial service companies. It will be investigated whether it is possible to introduce the substance and disclosure requirements for substance lacking intermediary holding companies per 1 January 2022.