Directives to counter tax avoidance in Holland

Holland’s membership in the Organisation for Economic Co-operation and Development (OECD) is a prerequisite for its active involvement in OECD’s project to counter profit shifting and base erosion (BEPS). An agreement has been reached regarding the BEPS in the OECD and all members are engaged with its implementation. Therefore Holland shall enact legislation accordingly.

As a result of its support for the project, the country has amended the innovation box regime in its tax legislation, in force from the 1st of January, 2017. Holland has adopted the so-called Multilateral Instrument, regardless of its reservations to particular points.

Transfer pricing documentation and CbC reporting, master and local files

The OECD implementation package on country-by-country (CbC) reporting is an example of legislation related to BEPS. The requirements for reporting are primarily intended to be used for the purposes of risk assessment by the tax authorities of the participating countries.

According to OECD’s report, multinational enterprises (MNEs) with turnovers of ≥ 750 million Euro will be required to submit CbC reports in the states where their ultimate parent companies are resident. Then the local tax authorities shall exchange the obtained information with the authorities in other involved countries participating in the agreement for mutual exchange of such reports.

Furthermore the finalized OECD report requires each company within the MNE to keep a local and master file at its administrative department. Master files contain information on transfer pricing in the whole enterprise and local files present the local company’s transactions within the enterprise. All reported information shall be kept strictly confidential and will not be publicly accessible.

Holland has adopted legislation that implements the CbC reporting package and corresponds to the methods and system prescribed therein. Additionally, Dutch enterprises with a total turnover of ≤ 50 million Euros are also required to keep master and local files.

As noted above, only parent companies of multinational enterprises are obliged to file CbC reports. Any Dutch entity included in a multinational enterprise whose turnover is equal to or exceeds 750 million Euros is required to send a notification to the tax administration specifying whether the surrogate or the ultimate parent entity will submit the CbC report. Alternatively, it must state which entity will submit the report and where it resides for the purpose of paying taxes. The deadline for sending this notification is at the end of the fiscal year.

Furthermore, Dutch companies required to file CbC reports must submit them no later than twelve months after the fiscal year’s end. The master and local files should be made available at the companies’ administrative departments by the deadline for submitting the tax returns.

Directive against tax avoidance practices

In July 2016 the European Union adopted Directive 2016/1164 laying down rules against tax avoidance practices that directly affect the functioning of the internal market. It includes several measures to counter tax avoidance. These are related to exit taxation, interest deductibility, anti-abuse and Controlled Foreign Companies.

The Directive also provides rules to address mismatches between member states (MS) of the EU stemming from the usage of hybrid entities or instruments. Its provisions have to be transposed to all MS as of December 31, 2018 and applied as of January 1, 2019. There is an exception regarding the exit taxation rule, that shall be transposed as of December 31, 2019 and applied as of January 1, 2020. As a MS of the EU, Holland is also required to implement the Directive.

In addition to the provisions of Council Directive (EU) 2016/1164, the EC proposed rules for mismatches between MS and non-EU countries in its plan for a European tax reform. Council Directive (EU) 2017/952 amending Directive (EU) 2016/1164 as regards hybrid mismatches with third countries was adopted on 29 May, 2017. It is still unclear how Holland will implement the two directives.

The Common Consolidated Corporate Tax Base (CCCTB) Project

The Commission’s tax reform proposal includes a mandatory CCCTB for MS, as of 2021. This project is very much alike a proposal from 2011 for CCCTB introduction. Its aim is to achieve harmonization of corporate taxation in the EU and provide a formula for allocation of corporate income among MS. The CCCTB project has a two-step approach. The first proposed step is to introduce a Common Corporate Tax Base as of 2019. The goal is to align the calculation of CTB between the MS.

It remains to be seen if the MS will endorse the corporate tax base proposals and when and how they will be implemented at the EU level, thus leading to new Dutch legislation. In any case, CTB is a serious matter for discussion as regards taxation in the EU.

State aid

The EC recently started an investigation on whether particular tax agreements between enterprises and national authorities are violating the state aid provisions of the EU. The EC has already reached the conclusion that some of the considered tax rulings represent illegitimate state aid. Such a conclusion has also been reached about a tax ruling in Holland. The state government has brought an appeal against this decision before the ECJ.

It is anticipated that the EC will also look at other tax agreements. Nevertheless the Commission has specifically pointed out that no systematic irregularities are expected with tax rulings in Holland. The country’s government holds the opinion that the general practice of tax ruling excludes state aid, provided that the rulings are consistent with the national tax law. Tax rulings aim to provide advanced certainty to taxpayers.

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