No Match Found
On 14 June 2019, the Dutch State Secretary of Finance answered parliamentary questions on the judgments of the Court of Justice of the EU (CJEU) in the so-called Danish beneficial owner cases.
The CJEU ruled that interest and dividend payments by Danish companies to related EU companies should be considered in these cases abuse of European rules because the EU companies were not the beneficial owners of these interest and dividend payments. The judgments may have far-reaching consequences for Dutch legal practice. Consider, for instance, the need to combat tax abuse, the Dutch ruling practice, the relationship with the Dutch double tax treaties and the proposed introduction of a withholding tax on interest and royalty payments as of 1 January 2021.
The most important answers of the State Secretary are provided below.
First, the State Secretary states that the possibilities of the Netherlands to tackle abuse are not unlimited and are partly limited by EU law. Moreover, the government sees an overlap between the CJEU judgments in the Danish beneficial owner cases and the current Dutch substance requirements. The State Secretary considers therefore that the current Dutch anti-abuse provisions are broadly in line with the CJEU judgments.
However, it cannot be ruled out that in a situation where the Dutch substance requirements are met, there can nevertheless be abuse within the meaning of the CJEU judgments. As a result, amendments to the existing anti-abuse provisions of the corporate income and dividend withholding tax laws will be proposed; these proposals will be included in the already announced Bill for the introduction of a conditional withholding tax on interest and royalty payments to low-tax jurisdictions and abusive situations that will be submitted on the Budget Day 2019 (17 September 2019).
As a result of these proposals, the role of the current substance requirements will change as of 1 January 2020. The objective of the announced amendments to the anti-abuse provisions in the corporate income and dividend withholding tax laws, is that even in situations where the Dutch substance requirements are met, the Dutch Tax Authorities - unlike now - will be able to tackle abuse more effectively.
The proposals will not only apply in relation to EU Member States, but also to third states (for example, the State Secretary in this context mentions Singapore).
Tax rulings relate to the legislation, policy and case law that apply at the time of their granting. In case of a change in legislation and/or regulation(s) that is/are relevant to a tax ruling, that ruling will automatically expire. Tax rulings issued in situations where the current substance requirements have been met, but which would qualify as abuse under the new legislation, will in principle expire as per the intended effective date of the entry into force of the legislative amendment (1 January 2020).
Irrespective of the CJEU judgments, as of 1 July 2019, a new tax ruling practice policy will apply. In light of the Danish cases, stricter requirements will be imposed on the granting of tax rulings. When issuing new tax rulings as of 1 July 2019, the guidance resulting from the CJEU judgments will be included in the Dutch Tax Authorities’ assessment of whether a tax ruling can be issued.
The Danish beneficial owner cases of the CJEU related to abuse of the European Interest and Royalty Directive and the European Parent-Subsidiary Directive. According to the State Secretary, the outcome of the CJEU judgments does no preclude taxpayers from relying on a double tax treaty concluded between the Netherlands and another EU/ EEA Member State in cases of abuse.
When asked whether the application of a double tax treaty is possible if that treaty does not provide for a (general) anti-abuse provision such as the Principal Purpose Test (PPT) of the Multilateral Treaty (MLI), the State Secretary answers that in line with the relevant case law of the Dutch Supreme Court recourse to national anti-abuse provisions is not easily honored under bilateral tax treaties that do not include an anti-abuse provision. According to the State Secretary, however, this a theoretical issue in the long term, since the Netherlands will include a PPT under the MLI in its bilateral double tax treaties.
The proposed conditional withholding tax on interest and royalty payments (introduction as of 1 January 2021) is not limited to interest and royalty payments to companies established outside the EU/EEA, but will also be applied to interest and royalty payments to companies established in other EU/EEA Member States in case of abuse. This also means that withholding tax on interest or royalty payments will be due upon the payment to an intermediary company established within or outside the EU/EEA, if:
The State Secretary states that the interpretation of the term "beneficial owner" in the double tax treaties concluded by the Netherlands, must, insofar as these provisions are similar to those in the OECD Model Tax Convention, be explained as described in the comments accompanying that specific tax treaty. For the application of the dividend withholding tax exemption, the concept of “beneficial owner” is also explained and applied by the Dutch Tax Authorities in accordance with the (most recent) Commentary on the OECD Model Tax Convention. According to the Dutch State Secretary, the wording of the OECD Commentary is so similar to that of the Dutch Supreme Court that the conclusion cannot be drawn that the OECD interpretation is stricter than the one given by the Dutch Supreme Court.
Two of the CJEU’s Danish beneficial owner cases concerned the exemption of withholding tax within the meaning of Article 5 of the European Parent-Subsidiary Directive. To the opinion of the Dutch State Secretary, the CJEU judgments did not deal with the application of the EU law principle of the prohibition of abuse of rights to the exemption of distributed profits. Nevertheless, the Dutch State Secretary is further examining the importance of the CJEU’s judgments to this issue in more detail.
The CJEU judgments in Danish beneficial owner cases, the State Secretary of Finance's answers and the policy and legislative changes announced by him may have far-reaching consequences for Dutch companies making dividend, interest or royalty payments in international situations to certain group companies. The precise consequences are strongly dependent on your specific situation. Please contact your PwC adviser to assess the impact of the Danish beneficial owner cases in light of the answers of the State Secretary for Finance and the policy and legislative changes announced by the State Secretary for your situation.
Michel van Dun
Senior Manager, PwC Netherlands
Tel: +31 (0)61 042 11 99
Senior Manager Tax, PwC Netherlands
Tel: +31 (0)61 399 87 29