September 4, 2013

The Netherlands move to more transparency and compliance with substance requirements

On August 30, 2013 , The Vice Minister of Finance presented in a letter the results of investigations regarding violations/abuse of tax treaties concluded by the Netherlands. The Netherlands reconfirmed to actively embrace the action plan of the OECD (Organization for Economic Cooperation and Development), published on July 19, 2013. The Vice Minister drew attention to the fact that measures should be taken at the global level (or at least at the level of the European Union) and execution of treaties shall be mutually binding for both sides of the treaty.

In the run-up to address this issue at the international level, the Dutch Government encourages, amongst others, the adoption of the following measures within the Netherlands:

1. Measures that prohibit the use of tax treaties by companies or groups of companies that do not have sufficient (material) relations with the Netherlands. Examples of such measures include:

(a) expanding requirement for holding, financing and royalty companies to comply with the substance requirements not only when asking for Advance Tax Rulings (ATR’s) and Advanced Pricing Agreements (APA’s) but even at the stage of annual return filing. Non-compliance with the minimum substance requirements on the Dutch side will be brought to the attention of the tax authorities of the country concerned.

(b) active exchange of information with the foreign tax authorities in case financing and royalty companies have solely financing and royalty activities within the Netherlands.

2. The inclusion of anti-abuse regulations in 23 existing tax treaties with developing countries.
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