The Netherlands - Response to BEPS
The Netherlands - Response to BEPS
Within the Netherlands, the OECD BEPS project generally and the EU’s follow-up initiatives specifically continue to capture public, media and lawmakers’ attention. With the spotlight on the taxation of multinationals, companies are increasingly weighing opportunities and risks, including the potential reputational damage related to international tax planning. The Dutch government has supported the OECD BEPS project from the outset and is currently implementing many of the BEPS recommendations adopted in the context of EU legislation, such as CbyC reporting and the exchange of tax rulings. The Netherlands is also preparing to introduce provisions from the EU ATA Directive, including CFC rules, limitations on interest deductibility and anti-hybrid mismatch rules.
OECD Multilateral Instrument and tax treaties with developing countries
On 7 June 2017, the Netherlands signed the Multilateral Instrument amending tax treaties and improving dispute resolution mechanisms, expansively opting in on many of the instrument’s provisions:
- The Netherlands has listed 82 tax treaties as covered tax agreements and expects a match following the signing ceremony with at least 40 countries. This number is expected to increase if more of the Netherlands’ treaty partners sign the instrument.
- The provisions on hybrid mismatches (transparent entities and dual resident entities) will apply to all covered tax agreements listed by the Netherlands, except for the provision on transparent entities in its treaties with Japan, the UK and the US, which already contain such provisions.
- Like all other signatories, the Netherlands has opted to apply the principal purpose test to all covered tax agreements. Unlike 12 other jurisdictions, the Netherlands did not opt for an additional simplified limitation on benefits test.
- In principle, the provisions that broaden the PE definition (e.g. provisions on commissionaire structures, definition of independency, specific activity exemptions and splitting of contracts) will all be implemented for covered tax agreements listed by the Netherlands, except for the splitting of contracts for exploring and exploiting natural resources.
The next step is the ratification process in the Netherlands, which is expected to start in the second half of 2017. Assuming the Netherlands ratifies the instrument in 2018, its provisions can enter into force as of 1 January 2019 for covered tax agreements with a match (i.e. listed by jurisdictions that have also ratified before 2019).
Dutch tax treaty policy is marked by its focus on developing countries and support for capacity building within their tax administrations. The Netherlands recently approached 23 of its developing country treaty partners to explore amending existing treaties to include enhanced anti-abuse provisions. Such provisions have been incorporated in new versions of a number of these treaties as a result.
The Dutch government is actively participating in tax transparency discussions in both the EU and the OECD and is keen to retain the country’s reputation for business friendliness while ensuring all countries have equal opportunities to compete. With the introduction of the automatic exchange of rulings between EU member states (taking effect 1 January 2017) and the equivalent OECDagreed exchange under Action 5, the Dutch tax administration is now spontaneously and automatically exchanging information about advance tax rulings and APAs.
The Dutch government favors multilateral rules that apply equally to all countries and supported the OECD BEPS recommendations on CbyC reporting. As of 1 January 2016, a new chapter covering CbyC reporting and transfer pricing documentation was added to the Dutch Corporate Income Tax Act. International companies based in the Netherlands and foreign-based companies that have selected a Dutch entity as the reporting entity are getting ready for their first CbyC filings, many of which are due in 2017. To facilitate the exchange of CbyC reports with the US, the Dutch and US competent authorities entered a formal arrangement for exchanging CbyC reports.
The Dutch government has implemented the modified nexus approach set out in the OECD BEPS Action 5 recommendation relating to patent and IP taxation regimes, which is designed to encourage R&D. In 2015, the EU also endorsed this approach. The changes to the Dutch innovation box took effect on 1 January 2017, effectively introducing the modified nexus approach while maintaining a 5 percent (effective) corporate taxation rate for the innovation box.