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03-12-2019

Dutch government confirms changes in substance requirements for financial service companies

On 28 November 2019, the Dutch State Secretary of Finance published a (draft) decree including changes of the Decree to the International Assistance with Levying Taxes Act (Uitvoeringsbesluit internationale bijstandsverlening bij de heffing van belastingen) (Decree). Pursuant to legislation introduced as from 1 January 2014 (article 3a section 7 of the Decree) a qualifying corporate income tax (CIT) payer has a statutory obligation to disclose in its CIT return whether it continuously meets during the entire year the substance requirements mentioned in the Decree in case the taxpayer did make or could have made use of any benefits offered by a tax treaty in the fiscal year under review. As expected, financial service companies will become subject to the following additional substance requirements:

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

The date of the possible amendment is yet unknown. The above-mentioned additional substance requirements are already part of other Dutch substance rules (i.e. Dutch controlled foreign company, Dutch dividend tax exemption and Dutch non-resident corporate income tax (CIT) rules). In contrary to the other Dutch substance rules, the Dutch State Secretary of Finance mentioned that a tax payer has no possibility to provide evidence to avoid disclosure of information under the application of the Decree.  

Background
As per 1 January 2014 certain statutory disclosure requirements for financial service companies have been introduced. In case the qualifying 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 2019) 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.

Current substance requirements:

  1. 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;
  2. The board members resident in the Netherlands have the required professional knowledge 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;
  3. The taxpayer has qualified personnel at its disposal to properly execute and register the transactions entered into;
  4. Board decisions are taken in the Netherlands;
  5. The main bank accounts are managed and kept from the Netherlands;
  6. Bookkeeping takes place in the Netherlands;
  7. The taxpayer’s business address is in the Netherlands;
  8. The taxpayer is (to the best of its knowledge) not treated as a tax resident of another state;
  9. 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 million is at risk, and that it can be substantiated that this amount is available and will be affected in case the risks materialize);
  10. The taxpayer at least has an equity that corresponds to the required real risks as mentioned under i) above in accordance with its functions.

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