On November 22nd 2018, the Dutch Ministry of Finance has informed the House of Representatives on amendments to the international ruling practice. A new policy is outlined with measures regarding the transparency, process and content of rulings. Background of the new policy is to limit the possibility to obtain a ruling in case of tax avoidance.
Introduction and background
On November 22nd 2018, the Dutch Ministry of Finance has informed the House of Representatives on amendments to the international ruling practice. A new policy is outlined with measures regarding the transparency, process and content of rulings. Background of the new policy is to limit the possibility to obtain a ruling in case of tax avoidance. The new practice should not affect businesses with genuine economic activities in the Netherlands. The Ministry of Finance wishes to implement the new policy as of July 1, 2019. Existing rulings and rulings agreed upon before the new policy is effective should not be impacted.
Economic nexus approach
An important change which will definitely restrict the possibility to obtain a ruling concerns the economic nexus approach. In order to obtain an international tax ruling the taxpayer needs to have an economic nexus with the Netherlands. This intensifies the current substance requirements for receiving a ruling. More specifically, the economic nexus approach is met if the activities of the taxpayer consist of business operations that are actually carried out in the Netherlands by sufficient, relevant personnel working in the Netherlands. The costs incurred must be in proportion to the activities performed and the content of the work must also align with the cash flows as present in the company.
Anti-tax avoidance The Dutch tax authorities intends to no longer conclude rulings with an international character if it determines that the decisive motive of the ruling is to realize Dutch and/or international tax savings. Furthermore, no rulings will be concluded in case it concerns transactions with entities in jurisdictions that are either on the EU-black list or are located in designated low-tax jurisdictions. Countries with a statutory profit tax of less than 9%, or countries without a profit tax, are considered low-tax jurisdictions. Currently the Netherlands designated Anguilla, Bahamas, Bahrain, Bermuda, British Virgin Islands, Guernsey, Isle of Man, Jersey, Cayman Islands, Kuwait, Palau, Qatar, Saudi Arabia, Turks and Caicos Islands, Vanuatu and the United Arab Emirates as low-tax jurisdictions. The final list is expected in December.
Transparency and process
The process will change in such a way that all the requests for a ruling with an international character will be dealt with by a newly formed central team of the Dutch tax authorities (“College Internationale Fiscale Zekerheid”) together with the already existing teams handling ruling requests. To enhance transparency, all rulings agreed upon with the Dutch tax authorities which possess an international character will be made available to the public by way of an anonymized summary. Another transparency measure, the Dutch tax authorities will annually publish a report containing all the rulings with an international character.
Reduction of the duration of the ruling
It has been announced that in principle the duration of rulings with an international character will be reduced from 10 years to 5 years.