Anti abuse provisions re share investments in Dutch companies
Another amendment resulting from the changed Parent-Subsidiary Directive is the introduction of a general anti-abuse regulation (GAAR). The implementation of the GAAR only regards the (withholding) tax on profit distributions and has no effect on the participation exemption in the corporate income tax.
The Dutch government opted to fulfil the obligations set forth by the Parent-Subsidiary Directive by means of (1) amendment of the rules for non-resident tax liability for corporate income tax purposes for entities with a shareholding of at least 5% in a company established in the Netherlands (substantial interest) and (2) the introduction of an anti-abusive provision for cooperatives in the dividend withholding tax.
Foreign resident entities that hold a substantial interest in a Dutch company (e.g. a share interest of 5% or more) will be taxable in the Netherlands if the main objective, or one of the main objectives, of the structure is to avoid taxation and the structure can be considered artificial. The Dutch taxation will not only apply to dividends but also to capital gains.
Under the new rules of the substantial interest regime in the corporate income tax it is no longer relevant whether the shareholding in the Dutch company is held as a portfolio investment or as part of the foreign company’s business assets. This is an important change since only portfolio investments were subject to the rules of the substantial interest regime.
As from 2016 it will be necessary to verify whether there are satisfactory business reasons for the shareholding structure applied. The explanatory note states that there will be adequate business reasons if the foreign shareholder is engaged in a genuine business activity and the shareholding in the Dutch company has a function in that business. Also a top holding company can be considered to fulfil this test if the holding company is actively involved in the management and financial affairs and thereby performs a material role within the group. The key word with regard to the foreign shareholder is thus ‘substance’.