NETHERLANDS Law and Practice Contributed by: Michael Molenaars, Jeroen Smits, Reinout de Boer and Rogier van der Struijk, Stibbe
4.3 Tax Authority Scrutiny of “Treaty Shopping” Practices
In 2020, the first version of an initiative legislative proposal for a conditional final-dividend withholding tax levy emergency act was proposed. The proposal introduced a taxable event (ie, a DWT exit levy) in the case of, for example, a cross-border relocation of the (corporate) tax seat or a cross-border merger of a Dutch company, provided certain conditions have been met. The proposal is currently still pending, but will have retroactive effect to 8 December 2021 after it enters into force. However, the Dutch Council of State and the Cabinet both advised the House of Rep - resentatives against adopting the initiative legislative proposal. Conditional Withholding Tax As of 1 January 2021, a conditional withholding tax was implemented on interest, royalty and (as of 1 Jan - uary 2024) dividend payments made to related entities in so-called “low-tax jurisdictions”, to hybrid entities and in certain abusive situations. The low-tax jurisdic - tions are listed in a ministerial decree and concern jurisdictions: • with a profit tax applying a statutory rate of less than 9% (updated annually based on an assess - ment as per 1 October of the year prior to the tax year); or • included on the EU list of non-co-operative juris - dictions. The tax rate is equal to the highest corporate income tax rate (ie, 25.8%). The payer and payee of the inter - est, royalties and dividends are considered to be related where there is a “qualifying interest” (a quali - fying interest generally being an interest that provides a controlling influence on the decision-making and activities). 4.2 Key Treaty Jurisdictions for Inbound Investment In 2024, the largest foreign investor in the Netherlands was the United States, followed by the United King - dom, Germany, Luxembourg and Belgium. The Neth - erlands has concluded double taxation treaties with all these countries.
So far, the Dutch tax authorities have not in general challenged the use of treaty-country entities by non- treaty-country residents. Only in the case, for exam - ple, of specific anti-conduit/anti-abuse rules, including EU anti-abuse rules, being breached (eg, in relation to the PSD) are the tax authorities expected to challenge It should be noted, however, that in light of the ongo - ing international public debate on aggressive interna - tional tax planning in the context of the G20/OECD, the Inclusive Framework on BEPS and recent case law of the ECJ, the Dutch tax authorities are moni - toring structures and investments more closely and will target those that are perceived as constituting “abuse”. In this respect, the importance of business motives, commercial and economic considerations and justification, and relevant substance seems to be rapidly increasing. See 6.6 The Substance of Non- Local Affiliates . such a structure. Targeting Abuse Furthermore, the Netherlands, as a member of the Inclusive Framework and a party to the Multilateral Instrument (MLI), agrees to the minimum standards included in Articles 6 and 7 of the MLI, which, among other things, prohibit the use of a tax treaty by – effec - tively – residents of third states. The Dutch government aims to discourage the use of so-called letterbox companies (ie, companies with no or very limited activities that add no value to the real economy). As part of this policy, among other things, the Dutch tax authorities are more closely monitoring whether companies that claim to be a resident of the Netherlands can indeed be considered as such based on their substance. In 2021, a report on letterbox com - panies was published, providing an overview on the (mis)use of letterbox companies. The report also con - tains (tax-related) recommendations which have not yet led to legislative proposals. 4.4 Transfer Pricing Issues for Inbound Investors The Dutch tax authorities strictly apply the arm’s length principle as included in Dutch tax law, in Article 9 of
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