NETHERLANDS Law and Practice Contributed by: Michael Molenaars, Jeroen Smits, Reinout de Boer and Rogier van der Struijk, Stibbe
ble taxation treaty, depending on the specific treaty, the Netherlands may be prohibited from levying capi - tal gains taxation. 5.4 Tax Implications of Change of Control A change of control due to the disposal of shares by a holding company at a tier higher in the corporate chain (eg, above the Netherlands) should, in principle, not trigger corporate income taxation (unless the sub - stantial shareholding rules apply, as referred to in 5.3 Capital Gains of Non-Residents ). However, Dutch tax law includes anti-abuse rules that lead to the cancel - lation of tax losses in the case of a change of control of certain companies (which, broadly speaking, have or are going to have limited activities). Also see 5.3 Capital Gains of Non-Residents in relation to capi - tal gains realised on the (indirect) sale of shares in a related Dutch entity. 5.5 Formula-Based Income Attribution The Netherlands typically does not determine the income of Dutch taxpayers, including those that are foreign-owned, based on formulary apportionment. Instead, remuneration for the rendering of services or the sale of goods between related companies is governed by the arm’s length principle. 5.6 Deductibility of Intra-Group Management and Administrative Charges Regarding the deduction of cross-charges by foreign group companies to the Netherlands, the arm’s length principle applies. For example, head office charges should be deductible by a Dutch corporate income taxpayer, provided that the expenses are at arm’s length. It should be noted that in some cases a mark- up is allowed. Cross-charged shareholder costs are not deductible. 5.7 Restraints on Related-Party Borrowing Other than the interest deduction limitations discussed in 2.5 Deduction of Interest , there are no other/spe - cific rules that particularly constrain the borrowings of a Dutch subsidiary from a foreign subsidiary as such. As discussed in 4.1 Application of Withholding Taxes , since 1 January 2021, a conditional withholding tax has applied on interest, royalty and (since 1 January 2024) dividend payments to related entities in low-tax
jurisdictions, to hybrid entities and in certain abusive situations.
6. Taxation of Foreign Income of Local Corporations 6.1 Foreign Income Exemptions If a PE is recognised to which the assets, risks and functions that generate the foreign income can be allocated, the foreign income should in principle be fully exempt from the Dutch corporate income tax base. The results of currency translation between the head office and the PE are not exempt. If certain conditions are met, losses that a PE has suffered on balance may be deductible, provided (among other things) that the losses are not utilised in any way in the PE state by the taxpayer (eg, the head office) or a related entity of the taxpayer. Since 2021, losses resulting from the dissolution of a PE in excess of EUR5 million are generally also limited to EU/EEA situations, similar to the rules that apply to participations. 6.2 Non-Deductible Local Expenses As a starting point, the income that is allocated to a PE is determined based on a functional analysis, taking into account the assets, risks and functions carried out by the PE. Because of the outcome of the functional analysis, expenses are allocated to the PE and are, as such, exempt (eg, non-deductible) from the Dutch corporate income tax base. Furthermore, in some cases, expenses charged by the PE to the head office in consideration for services provided to the head office by the PE may be ignored. Other than that, there are no specific rules due to which local expenses are treated as non-deductible. 6.3 Dividends From Foreign Subsidiaries Dividend income distributed to a Dutch company is in principle fully exempt if the participation exemp - tion is applicable. The application of the participation exemption is discussed in 2.7 Capital Gains .
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