Corporate income tax subjects• Residents• Non-residents, such as: - societies and other legal persons; - taxable limited partnerships (Open CV’s) and other companies not having legal personality of which the equity is divided into shares; - special purpose funds
Taxable object for non-resident taxpayers• Non-resident taxpayers are taxed on their taxable Dutch amount, which is their Dutch income minus losses.
What is Dutch income? (i.o.w. when are foreign companies subject to tax in the Netherlands)1. Taxable profit from an enterprise run in the Netherlands (so-called Dutch enterprise)2. Taxable income from a subtantial interest in a company resident in the Netherlands, if the substantial interest does not form part of the assets of an enterprise
When do you have income from a Dutch enterprise?• Permanent establishment / representative• Real estate located in the Netherlands• Rights to a share in the profit of the equity of an enterprise• Activities performed as a director or member of an advisory board of a Dutch resident company• Certain activities on, or above the territorial waters as well as the oceanlevel and below• Income from receivables held on substantial interest companies
Substantial interest for CIT purposes• Non-resident taxpayer holds at least 5% of the shares in a Dutch company (e.g. BV, NV or Coop), and• Shareholding is not attributable to an enterprise of the non-resident taxpayer, and• non-resident taxpayer holds the shares as main purpose to avoid taxation of someone else’s income tax or dividend tax
Main purpose• Law says “main purpose” or “one of the main purposes”.• “Someone else’s” income tax or dividend tax.
Main purposePrivate individual is in NL taxed for:Dividend income (Box 2)Capital gains (Box 2)Interest (Box 1) Private individual Non-Dutch
Main purposeMain purpose to avoid Private individualsomeone else’s income Non-Dutchtax? Private individual Holdco Non-Dutch Cyprus
Main purposeHoldco is in NL taxed for: Private individualDividend income Non-DutchCapital gainsInterest Private individual Holdco Non-Dutch Cyprus
Substantial interest for CIT purposes• Foreign entity can become subject to tax in the Netherlands for: - Ordinary income (dividends) - Capital gains and - (deemed) interest income
Example 1 Substantial interest NLBV distributes dividend of 100NA NV NA NV subject to tax in the Netherlands for Dividend CIT 100 x 25% Treaties / BRK can decrease the CIT f.i. 8,3% (2011)NL BV
Example 2 Substantial interest Cyprus Sale of the shares NL BV may cause Cyprus to become subject to tax in the NL NL BV
Example 3 LoanLiechtenstein Liechtenstein JerseyStiftung AG 1/3 Loan 1/3 1/3 Loan BV
Practice “Not attributable to an enterprise”, means portfolio investment. When are the shares not held as portfolio investement:• Management activities?• Risk bearing capital?
• If a Coop holds shares in Dutch and non-Dutch companies• with the main purpose• to avoid someone else’s dividend tax or foreign (wht) tax and• the membership in the Coop does not belong to the entreprise of the Coop member,• the Coop will be treated as a limited liability company for Dutch dividend tax purposes.
• In other words a Coop that functions as holding company may become subject to Dutch dividend withholding tax, if the coop member holds its (≥5%) membership share as a portfolio investment and intends to avoid withholding tax.
Example Coop and dividend tax (1) Brazil• Is Coop held as portfolio investment?• Main purpose avoiding tax? 0% or 15%• 5% or more? Coop 0% GmbH
• If a Coop holds shares in Dutch companies• with the main purpose• to avoid someone else’s dividend tax or foreign (wht) tax,• the Coop will be treated as a limited liability company for Dutch dividend tax purposes• to the extent the profit distribution does not exceed the profit reserves of the Dutch companies when acquired.
Example Coop and dividend tax (2) Brazil• Main purpose avoiding tax?• 5% or more?• Does NL 0% or 15%• Did BV have profit reserves when acquired? Coop 0% NL BV
Example Coop and dividend tax (3)• Coop purchased Dutch BV in 2011• Dutch BV has profit reserve of Eu 4 mio• Coop distributes profit to its member in 2012• First Eu 4 mio will be subject to Dutch dividend tax.
What is dividendstripping?• Shareholder with• No or limited right for compensation of dividend tax provides for• Another person to receive the dividend• Who does have the right to set off dividend tax• In the exchange for the equivalent of the dividend
Example dividendstripping (1) Private individual abroad Private individual abroad Sale to bank in NL 15% 3% dividend 3% tax Dividend NL NV NL NVDividend distribution 28 Sale cum dividend 128Dividend tax 3,5 Repurchase ex dividend 100Net 24,5 Net 28
Example dividendstripping (2) Private individual Abroad NL BV 15% 0% dividend dividend tax tax Dividend NL NV NL NV Private individual sells his shares to NL BV and NL BV concludes a putoption. After dividend distribution, BV sells shares back to private individual.
Examples dividendstripping• Sale shares in Dutch listed companies to bank• Lending of shares• Sale and repurchase (call- and putoptions)• Hanging within concern• Intermediate holding company
Measures against dividendstripping• Introduction definition beneficial owner• Sanction: reversing reduction or exemption to national tariff of 15%
When is a person not considered to be a beneficial owner?• Recipient of dividend performs a service which is a part of several transactions• in exchange for the income• which income will actually be received by the holder of the restricted right and• this holder keeps it’s position in the company
Example dividendstripping (5) NA NV NA NV 0% 8,3% Please note: Cyprus Ltd When sanction then 15% DT BV 0% BV
Bonafide cases• Bonafide purchaser on the stock exchange• Bonafide withholding agent (based on declaration recipient of dividend)• Durable reorganisation combined with an ordinary dividend distribution
Durable reorganisation• Time between reorganisation and dividend distribution• Type of dividend distribution• Durableness reorganisationSafe HarbourIn case of durable reorganisation in combinationwith an ordinary dividend distribution irrespectiveof the time between reorganisation and dividenddistribution
Example dividendstripping (6) NA NV1 NA NV2 COOP NL BV Sale NV2 looses it’s current participation, consequently no sanction