The outcome of recent cases of the European Court of Justice has led the Dutch State Secretary to announcing that on Budget Day (‘Prinsjesdag’) he will propose changes to the anti-abuse rules in the Corporate Income Tax Act and the Dividend Tax Act. These changes should enter into effect as per January 1, 2020.
Currently it is assumed that the shareholder of a Dutch company, being an intermediate holding company, has valid commercial reasons reflecting economic reality, in case the shareholder has relevant substance (such as office space and payroll costs of EUR 100,000). In case there is no relevant substance at the level of the shareholder, it is still possible to proof that there are commercial reasons present. In both cases the domestic dividend withholding tax exemption will be applicable and no corporate income tax will be levied.
The proposed new rules entail that the Dutch Tax Authorities can deny the domestic withholding tax exemption and may levy corporate income tax if they can demonstrate that the primary objective, or one of the primary objectives, for holding the Dutch participation, is tax evasion. As such, the substance requirements do not longer serve as a safe harbor for the tax payer, but they will become relevant to determine who will bear the burden of proof.
The State Secretary has confirmed that this change should in principle not affect existing rulings, only in case the Dutch Tax Authorities notify the tax payer that the ruling is no longer valid.
For more information, please contact Gerriët Nagelhout.