New withholding tax obligation for Dutch “holding cooperatives”
The Dutch government has announced that it intends to bring the treatment of Dutch cooperatives more in line with the treatment of Dutch NVs and BVs. In order to achieve this objective the Dutch government has proposed changes to bring certain Dutch cooperatives under the scope of the Dutch dividend withholding tax rules if both of the following conditions are met:
- the cooperative is a “holding cooperative” if its actual activities in the year preceding the profit distribution consisted primarily (i.e., for 70 percent or more) of the holding of participations or the direct or indirect financing of related entities or individuals, and
- the members of the cooperative have “qualifying membership rights”. In assessing whether there is a qualifying membership right, the membership rights of a member and the entities and individuals related to that member will be taken into account.
Non-holding or “real” cooperatives (cooperatives running a business enterprise and/or with a large group of members) will remain exempt from dividend withholding tax.
Broadened Dutch dividend withholding tax exemption
In conjunction with the new withholding tax obligation that would apply to Dutch “holding cooperatives”, the consultation document also includes a proposal to broaden the scope of the domestic dividend withholding tax exemption. The exemption would apply to distributions made by BVs/NVs and holding cooperatives (“Dutch entities”) to parent companies that are tax resident in the EU/European Economic Area or in a third country that has concluded a tax treaty with the Netherlands. In both instances, the interest in the Dutch entity would have to be an interest that would qualify for the Dutch participation exemption or participation credit if the recipient were resident in the Netherlands.
New Anti-abuse rule
It should be noted that the proposed expanded exemption will be subject to a new anti-abuse rule. The dividend withholding tax exemption will not apply if, cumulatively:
- the shares, or in the case of a cooperative, the membership rights, are held with the main purpose, or one of the main purposes, to avoid Dutch dividend withholding tax by another individual or entity, and
- the holding of the shares or membership rights is part of an artificial arrangement or transaction, which will be the case if there are no valid business reasons reflecting economic reality.
What to do?
If the proposed measures are adopted, they will likely apply as from January 1, 2018. Thus, potentially affected taxpayers should assess the effect of the proposed changes, which could be beneficial given the broadened exemption but also could be detrimental given that holding cooperatives are now within the scope of Dutch dividend withholding tax and of the anti-abuse rule (which will also be applicable to BVs/NVs).
Feel free to contact us in case you want to receive information about the proposed changes in the Dutch dividend withholding tax, or if you need advice on your specific situation.
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