Dutch State Secretary of Finance announces changes in Dutch international ruling practice

On 23 April 2019, the Dutch State Secretary of Finance published a letter and a (draft) decree on the Dutch international ruling practice ("Decree").

The Decree will replace the current decree on the Dutch international ruling practice on 1 July 2019. The Decree includes rules on the application procedure for international tax rulings, the content thereof, conditions for applicants (which should be met in order for the Dutch tax authorities to handle a ruling request) and transparency considerations.

The reasons for the change in policy include increase of transparency in the ruling practice and to improve the robustness and quality of the ruling practice for companies engaged in ‘real’ activities in the Netherlands.

The most important changes concern stricter conditions for applicants applying for an international tax ruling and an increase of transparency considerations.

Conditions for companies applying for an international tax ruling
Under the proposed rules, the Dutch tax authorities will only handle a ruling request if:

1. The Dutch taxpayer has sufficient ‘economic nexus’;
2. The main or principle reason for the transaction should not be to mitigate Dutch or non-Dutch taxes; and
3. The transaction should not involve a jurisdiction which is included on the Dutch list of low taxed jurisdictions.

The term ‘economic nexus’ will be interpreted as follows:

• The Dutch company is engaged in economic activities in the Netherlands;
• The activities of the Dutch companies are actually performed by the Dutch company;
• The activities should be in line with the company’s function within the group;
• There should be sufficient personnel relevant for the tasks performed in the Netherlands on a group level and the number of employees should be proportional to the overall employees available within the group;
• The level of costs should also be proportional to the activities carried out within the group.

The Dutch State Secretary of Finance published a list of 12 examples on the application of the above rules and announced that actual situations will be published clarifying the scope of these rules.

Transparency requirements
An anonymized summary of all rulings with an international character will be published, including inter alia a description of the relevant facts and main conclusions from transfer pricing reports or other documents and an analysis of the relevant legislation (insofar applicable).

In addition, summaries will be published of ruling requests with an international character (which have been discussed with the Dutch tax authorities during a preliminary consultation) which have not been concluded and an explanation why no ruling was concluded.

Take away
In the past years significant legislative changes have taken place in Dutch and international legislation aimed at preventing the use of artificial structures and arrangements and anti-tax avoidance and increase of transparency. Examples thereof include the Anti-Base Erosion and Profit Shifting (“BEPS”) Project, the introduction of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS ("MLI") and the adoption of the EU Anti-Tax Avoidance Directives. The introduction of the Decree is in line with these international developments.