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Such legislation will supplement the legislation that implements a withholding tax on interest and royalty payments (the 2021 Bill on conditional source tax). The Dutch government’s intention to introduce a conditional withholding tax as per 1 January 2024 was previously announced in a letter of 29 May 2020 to the Dutch Parliament.
The conditional withholding tax on dividends aims at preventing dividend flows from the Netherlands to jurisdictions with a statutory corporate income tax rate of less than 9%, and to countries included in the EU list of non-cooperative jurisdictions. The new tax will also be levied even if the Netherlands has concluded a double tax treaty with the above countries/juridictions. Of note is that there is no transitional law like in the case of the conditional withholding tax on interest and royalties.
The new withholding tax may have consequences for your organization if your organisation pays dividends as of 2024 to shareholders that are resident in a low-taxed jurisdiction (with a statutory corporate income tax rate of less than 9%) or resident in countries that are included in the EU list of non-cooperative jurisdictions. The tax will also apply in tax treaty situations. Although the intention of the Dutch government is clear, it is unclear at this moment whether and in what form this proposed tax will be enacted, also considering the fact that general elections will be held in 2021.
The proposed taxable basis for the new tax is broadly in line with the Dutch Dividend Withholding Tax Act (DWTA). The taxable basis for purpose of the new tax is explicitly linked to the objective approach of the concept of "benefit" in the DWTA. This involves looking at the profit that the distributing body has achieved from its incorporation to its liquidation. Other provisions of the proposed tax also correspond to provisions in the DWTA. This includes the issuance of shares, the return of the paid-up capital on shares, and the determination of the amount of the paid-up capital.
Withholding agents for the proposed conditional taxation on dividends are entities with a capital divided into shares, or entities assimilated therewith. Contrary to the DWTA, mutual funds and all cooperatives (not just holding cooperatives) will also be regarded as withholding agents for the new tax.
The proposed legislation includes a concurrence provision with the aim to prevent both regular dividend tax (DWTA) and conditional withholding tax from being levied on the same amount of dividends. In the case of a parallel application of these taxes, the conditional withholding tax will be reduced with the amount of the regular dividend tax due. By this way, there will be a withholding tax liability up to the amount of the conditional withholding tax and there will be no double taxation.
Payment and settlement of conditional withholding tax
Contrary to the regular dividend withholding tax, the withholding agent remits the conditional withholding tax at the latest within one month following the end of the calendar year, in accordance with the tax return. The final date for filing the tax return and paying the conditional withholding tax will always be 31 January of the following year.
Background on the introduction of a conditional withholding tax on dividends
In the middle of 2018, the Dutch government announced its intention to repeal the withholding tax legislation. Next to this, the government aimed at introducing a withholding tax for the payment of dividends, interest and royalties to entities established in low tax jurisdictions and in situations of abuse.
In October 2018, the Dutch government decided to maintain the dividend tax legislation and to introduce a conditional withholding tax on interest and royalties. In addition, it decided to postpone its plans for a conditional withholding tax on dividends and to examine whether such a tax is desirable. The government has now concluded that such additional measures are indeed desirable.
Despite maintaining the dividend withholding tax and introducing anti-abuse measures in dividend tax legislation as per 1 January 2018, the government observed that there are certain situations where intra-group dividends can be paid untaxed to shareholders in low tax jurisdictions. The government considers this situation undesirable and therefore it suggested an additional measure, i.e. the conditional withholding tax on dividends. More in particular, this concerns dividend payments by passive cooperatives.
Michel van Dun
Senior Manager, PwC Netherlands
Tel: +31 (0)61 042 11 99
Senior Manager Tax, PwC Netherlands
Tel: +31 (0)65 163 90 79