Q&A document Dutch tax authorities on minimum taxation (P2)

What does this mean for your company?

The Q&A comes into play when your company falls within the scope of the Pillar Two rules. Pillar Two concerns the 15% global minimum tax system for large companies introduced in various countries – including all of the EU member states – at the end of 2023. The Netherlands has introduced Pillar Two in the Dutch tax legislation with the Dutch Minimum Tax Act 2024.

The Q&A provides some practical support on the operation of Dutch tax law involving the implementation by the Netherlands of the Global Minimum Tax (Pillar Two). The Q&A is to be considered non-exhaustive and dynamic in nature. The document will be updated regularly with new questions, answers, advancing insights on the operation of the law, and such.

The Q&A is subject to relevant changes in law or policy, and any future releases of administrative guidance (AG) as published by the OECD or the European Commission.  The Dutch tax authorities also make it clear that no rights can be derived from the Q&A. Taxpayers who seek advance legal certainty on the application of the Dutch minimum tax legislation in a specific matter, have the possibility of submitting a request for a preliminary ruling to their tax inspector or the Pillar Two Expertise Team.

Pillar Two is a challenge from a compliance perspective. The measures may give rise to far-reaching compliance costs and/or an increases or decreases in top-up taxation as provided for in the Pillar Two legislation. The Q&A provides the business community with tools to better manage the compliance pressure of Pillar Two. We recommend that you map out the guidance from the Dutch tax authorities on the components relevant to your organisation and incorporate them in your business management processes.

United States (GILTI, Subpart F, Reverse Hybrid Entities) 

According to the Dutch tax authorities, the US GILTI and Subpart-F rules are to be seen as separate and different CFC regimes that are to be treated separately for the allocation of the covered taxes involved to certain types of constituent entities for Dutch minimum tax purposes. The special allocation rules for blended CFC tax regimes (such as GILTI) do not apply to the US Subpart F regime. The regular allocation rules for CFC schemes apply in this regard. Insofar as Subpart F relates to both active and passive income, according to the Dutch tax authorities, the general attribution rules apply to the active income items involved. 

The Dutch tax authorities provide some further interpretation of the concept of ‘reverse hybrid entity’ in relation to a so-called 'check-the-box election' in the U.S. When a U.S. parent entity elects to treat a Dutch subsidiary company and its U.S. sub-subsidiary company as transparent for U.S. corporate tax purposes – while the Netherlands considers this sub-subsidiary company to be non-transparent for Dutch corporate tax purposes – then according to the Dutch tax authorities, this sub-subsidiary is to be regarded as a flow-through entity that qualifies as a reverse hybrid entity for Dutch minimum tax purposes.  

Grandfathering MAP-tiebreaker introduction (Decision 9 December 2019) 

The Dutch tax authorities indicate that the grandfathering for existing situations in the case of a dual resident entity, upon the introduction of a MAP tiebreaker in the relevant tax treaty pursuant to the Decree of 9 December 2019 (no. 2019-25404), also applies to the determination of the location of the constituent entity concerned for Dutch minimum tax purposes. 

Earn-out obligations (participation exemption minimum tax) 

According to the Dutch tax authorities, a release of an earn-out obligation, as a result of a non-meeting of a certain condition after acquisition (e.g. EBITDA is greater than a certain agreed upon amount in a given year), qualifies as an excluded capital gain for Dutch minimum tax purposes. This is assuming that the applicable financial accounting rules in place require that such a release be included in the result. Under the same assumption of inclusion in the result for accounting purposes – and in the event that the shareholding involved does not qualify as a portfolio interest – an earn-out claim that ceases to exist qualifies as an excluded capital loss according to the Dutch tax authorities. 

Prior year tax adjustments 

With regard to prior year tax adjustments, the Dutch tax authorities note that the relevant provisions in the minimum tax legislation only deal with the treatment of such corrections after the top-up tax information return (GIR) for those previous years has already been submitted. Are such adjustments eligible to be included in the GIR for the previous reporting year before the GIR is submitted, i.e., regardless of whether there is an increase or a decrease in the covered taxes involved? The Dutch tax authorities note that this question is pending before the OECD and some administrative guidance is expected to follow. 

Administrative aspects 

The Dutch tax authorities indicate that there is no registration obligation for Dutch minimum tax purposes. The Dutch tax authorities note that the Country-by-Country (CbC) notification in Dutch corporate income tax  involves a different administrative obligation than the notification for Dutch minimum tax purposes.

If top-up tax is due, a tax return must be filed via a form on an online portal managed by the Dutch tax authorities. This obligation to file a tax return exists in addition to the obligation to submit the GIR. The application of a temporary safe harbour rule does not exempt groups from the GIR filing obligation. The GIR will be submitted via a portal managed by the Duch tax authorities. More information on the method of submitting the GIR and the notification will be made available on the website of the Dutch tax authorities. 

The Dutch tax authorities indicate that if top-up tax is due in a constituent entity established in the Netherlands, it is up to the multinational or large domestic group involved to provide this taxable constituent entity with the necessary monetary resources to be able to pay the top-up tax due. The Dutch tax authorities indicate that the Dutch minimum tax has no materiality threshold and therefore all transfer pricing adjustments are included for the calculation of the top-up tax. According to the Dutch tax authorities, transfer pricing adjustments for intra-group transactions with an aggregated value of less than EUR 35 million during the reporting year may not be reported in the GIR.