Favorable amendment to proposed changes of tax classification rules

On 26 October 2023, the Dutch Lower of Parliament approved a favorable last-minute amendment to the proposed changes of the tax classification rules as earlier reported in our Tax Alert for the occasion of Budget Day. The amendment takes away undesirable adverse consequences affecting certain partnerships residing in non-cooperative (blacklisted) jurisdictions as well as hybrid foreign partnerships not established or not residing in non-cooperative (backlisted) jurisdictions. In these situations the interaction between the conditional withholding tax on dividends effective as of 1 January 2024 and the proposed changes of the tax classification rules as of 1 January 2025 creates an undesirable gap year.

The favorable amendment allows a look-through approach and implies that the new tax classification rules will be deemed to apply already as of 1 January 2024 which is the start date of a conditional dividend withholding tax on dividend payments to entities including certain partnerships residing in non-cooperative (blacklisted) jurisdictions as well as to hybrid foreign partnerships not established or not residing in non-cooperative (backlisted) jurisdictions. For more information on the current non-cooperative (blacklisted) jurisdictions, reference is made to our alert of 5 January 2023. In particular, taxpayers with foreign partnerships in their corporate structure should consider the impact of the conditional withholding tax on dividend payments and the favorable look-through approach.

It is noted that the look-through approach does not apply to the already existing conditional withholding tax on interest or royalty payments or regular dividend withholding tax.