Expansion of the dividend withholding tax exemption and broadening Dutch dividend withholding tax base to include holding cooperatives.
Great News! The draft bill concerning the Dutch withholding tax contains several decrees that both tighten and broadens the Dutch dividend withholding tax exemption has been sent to parliament. It provides relief from double taxation in genuine corporate structures.
This legislation makes the Netherlands more attractive for corporate structures.
Dutch dividend withholding tax exemption
Starting in 2018, the Dutch dividend withholding tax will include a broadened exemption scope. The exemption already applies to the distributions made by Dutch private or public limited companies. In 2018 holding cooperatives that made distributions to parent companies in the European Economic Area or other countries in possession of a (dividend article in the) tax treaty with the Netherlands, will also be entitled to the exemption. This exemption is subject to the anti-abuse rule on Dutch cooperative and dividend withholding taxes. Hence, the latter will both broaden and strengthen. However, the adjustments only concern qualifying shareholders. In addition, these shareholders must reside in countries with which the Netherlands has a tax treaty with a dividend article.
The only drawback is the complex Dutch anti-abuse legislation. Genuine corporate structures are not regarded to be abusive. An objective anti-abuse legislation and the inclusion of relevant substances would make for a tough analysis.
Withholding tax obligation of holding cooperatives
Dutch dividend withholding tax is due under the following conditions. A company in a treaty jurisdiction opens a shop in the Netherlands. Second, the tax treaty must allow for dividend withholding tax in the source state. This is most common in Canada, and the USA if LOB is not met. Hence, a Dutch cooperative was a solution as it was not subject to Dutch dividend withholding tax.
Everyone with the legal right to profits of shares in, dividends of and hybrid loans to private limited liability companies (BV) and/or public limited companies (NV) seated in the Netherlands, is subject to Dutch dividend withholding tax unless an exemption applies. The bill now wishes to include the members of Dutch holding cooperatives in possession of qualifying membership rights to also be subject to Dutch dividend withholding tax. For shareholders in tax treaty jurisdictions, this has no effect. For shareholders in countries with which the Netherlands does not have a tax treaty, there is still an option to set up a PE and allocate the shares in the subsidiary to the PE. This is expensive but tried and tested.
If you have any questions concerning the bill or Dutch withholding dividend tax, please feel free to contact us for more information.