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Netherlands: Tax treaty policy, designation of low-taxed states for consultation

Netherlands: Tax treaty policy, low-taxed states

The Dutch government on 25 September 2018 launched an internet consultation seeking comments relating to (1) the Dutch tax treaty policy, and (2) the designation of low-taxed states with respect to proposed controlled foreign companies (CFCs) measures (as proposed on the “budget day”).


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With regards to: 

  • Tax treaty policy—Conditional withholding tax would be introduced to cover dividends, interest, and royalty payments to affiliated entities established in low-tax states and in “abuse situations.” If a tax treaty concluded with such a jurisdiction hinders taxation, the Netherlands would approach the treaty partner in order to amend the treaty in such a way that the Netherlands can impose the withholding tax. In situations when there is no abuse, only taxation in the state of residence or a reduced rate could be included in the treaty. An example of a specific anti-abuse provision would be allowing treaty benefits provided there is a tax of at least 7% or specific substance. 
  • Designation of low-taxed states—One measure in legislation to implement the Anti-Tax Avoidance Directive (ATAD1) is a CFC measure that would apply to financial years beginning on or after 1 January 2019. Under this measure, CFC profits from passive sources of income that are not distributed or not distributed promptly would be included in the Dutch tax base. One of the characteristics of a CFC is that it must involve an entity or permanent establishment in a “designated state” (low-taxed states meaning those without a profit tax or with a statutory rate of tax of less than 7%) or a state appearing on the EU list of non-cooperative countries (the EU blacklist). An appendix to the consultation document contains a list of low-taxed states (based on currently available information) as follows: Anguilla, the Bahamas, Bahrain, Bermuda, the British Virgin Islands, Guernsey, the Isle of Man, Jersey, the Cayman Islands, Kuwait, Palau, Qatar, Saudi Arabia, the Turks and Caicos Islands, Vanuatu, and the United Arab Emirates. The EU blacklist (since May 2018: American Samoa, Guam, Namibia, Palau, Samoa, Trinidad and Tobago and the U.S. Virgin Islands) is a fact and is not part of the consultation (but is part of the final list). 


Read a September 2018 report prepared by the KPMG member firm in the Netherlands

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