Strategizing Multinational Tax Risks

Holding companies in the Netherlands that conduct finance and leasing operations must meet substance requirements as of 1/1/2014, with confirmation provided in the annual income tax return.  To the extent that one, or more, of the requirements are not fulfilled, such information is required to be disclosed, with such disclosures spontaneously provided to the relevant treaty partner who can use it to review tax treaty benefits.  A Tax Flash from Loyens & Loeff provides a summary of these requirements, as well as an interesting comparison of the substance requirements to those relevant for an APA of a group financing company.

http://www.loyensloeff.com/nl-NL/News/Publications/Flashes/Pages/TaxFlash22October2013.aspx

A taxpayer must meet all of the following substance requirements:

• 50% or more of decision-making board members reside in the Netherlands, and have the relevant professional knowledge to perform their duties
• Qualified employees are in place to implement and register transactions
• Management decisions are taken in the Netherlands
• (Authority for) main bank accounts is retained in the Netherlands
• Books are kept in the Netherlands
• Business address is in the Netherlands
• The taxpayer is not a dual resident with another country
• Risks are evident for financing, licensing or leasing activities
• An appropriate equity is maintained with regard to the functions performed

Beneficial ownership rules are subject to additional review and attention by OECD and global tax authorities, and Netherlands is using this prescriptive approach to ensure that substance is maintained and exchange of information provisions are in place to identity taxpayers not meeting such requirements.  All multinationals should monitor this topic, while also ensuring that Dutch holding companies meet the relevant substance requirements