Expansion of the dividend withholding tax exemption and broadening dividend withholding tax base to include holding cooperatives

Great News! The draft bill concerning the Dutch withholding tax obligation for holding cooperatives and the expansion of the withholding tax exemption contains several decrees that both tightens and broadens the Dutch dividend withholding tax exemption has been sent to parliament. It provides for relief from double taxation in genuine corporate structures.

This legislation makes the Netherlands more attractive for corporate structures.

Dutch dividend withholding tax exemption 

The Dutch dividend withholding tax will, as from January 1st, 2018, include a Dutch dividend withholding tax exemption. Not only the distributions made by Dutch private limited liability companies or public limited companies, but also holding cooperatives who made distributions to parent companies in the European Economic Area or other countries in possessing of a (dividend article in the) tax treaty with the Netherlands, will be entitled to the exemption. Since the Dutch withholding dividend withholding tax exemption is subject to the anti-abuse rule concerning Dutch cooperative and dividend withholding taxes, the latter will be broadened, but strengthened as well, by expanding the exemption scope. However, an exemption applies to qualifying shareholders located in countries with which the Netherlands has a tax treaty with a dividend article. This exemption is welcomed.

The only drawback is the complex Dutch anti-abuse legislation. Genuine corporate structures are not regarded to be abusive, but a subjective and objective anti-abuse legislation, the inclusion of relevant substance, would make for a tough analysis and would provide enough content for a nice new blog.

Withholding tax obligation of holding cooperatives

When a company in a treaty jurisdiction would like to open shop in the Netherlands, and the tax treaty allows for dividend withholding tax in the source state, Dutch dividend withholding tax was due. Situations which are most common are with Canada, USA if LOB is not met. In this situation, 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 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.

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