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Netherlands: Updated, stricter requirements for tax rulings with international character

Netherlands: Tax rulings with international character

The Dutch Deputy Minister of Finance in a November 2018 letter to the Lower House outlined the main features of a revision of the tax ruling practice.


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The change is aimed at further safeguarding the quality of the tax ruling practice for businesses with activities of substance as well as enhancing the ruling practice. There will be more stringent requirements for issuing rulings with an international character, and the procedures for issuing these rulings will be more transparent. The revision of the ruling practice stems from the Tax Policy Agenda, in which measures on transparency and integrity form an important pillar. It is intended that the new measures will be effective 1 July 2019. 

The proposed measures cover the elements transparency, process and content in the context of the issuing of all rulings with an international character. 

Transparency and process

The process of issuing rulings by the Dutch tax authorities will become more transparent and less ambiguous. All applied-for rulings with an international character will also be assessed by a central team—the new “international tax certainty executive” (College Internationale Fiscale Zekerheid). Currently, a central team approach with a “second signatory” is only used for certain types of rulings such as advance pricing agreements (APAs) and advance tax rulings (ATRs). 

There are also measures that satisfy the need to make more information about rulings with an international character public. For example, the Dutch tax authorities will publish an anonymous summary of certain rulings immediately after they are issued, and the annual report of the Dutch tax authorities will in the future cover all rulings with an international character (and not only APAs and ATRs). In addition to this, periodic examination by independent experts will continue and will also address all rulings with an international character. 


Economic nexus: An important measure is the tightening of the substance requirements. The current list of substance requirements will be replaced with a requirement for an economic nexus with the Netherlands. This must involve commercial operating activities that are actually performed in the Netherlands by a sufficient number of relevant personnel in the Netherlands. The amount of the operating costs incurred must also be in proportion to what the business does in the Netherlands. Moreover, the content of the work must be in keeping with the cashflows circulating in a business. 

Motive: The Dutch tax authorities will look more critically at the purpose of the specific arrangement for which the ruling is requested. Tax rulings will no longer be issued for arrangements that have Dutch or international tax savings (a new requirement) as their decisive motive. In addition, tax rulings will no longer be issued in the future for transactions with entities established in countries that are on the EU list of non-cooperative jurisdictions (currently, this list includes: American Samoa, Guam, Samoa, Trinidad and Tobago, and the U.S. Virgin Islands). The same applies to transactions with entities established in low-taxed countries. These are countries without a profit tax or with a statutory tax rate that is less than 9%. 

Examples of economic nexus and motive: There are four explicit examples when a ruling is currently issued, but for which no ruling will be issued in the future: 

  • An interest-free loan with an arm's length interest deduction in the Netherlands (based on the informal capital doctrine), but which is not taxed outside the Netherlands (motive)
  • An operating entity that also has an interest/royalties conduit function without an economic nexus with the Netherlands
  • A multinational with a large finance department outside the Netherlands and two financial full-time equivalents in the Netherlands, whose main task in the Netherlands is obviously a conduit function so that foreign tax can be reduced (motive and possible economic nexus)
  • A holding company without active management activities in respect of participations, which is insufficient economic nexus

When a ruling with an international context is applied for, it is up to the Dutch tax authorities to assess the economic nexus and taxpayer’s motive—in relation to one another—based on the specific circumstances of each case. Under these measures, the Dutch tax authorities will also assess where the cash flows originate, which activities are performed in the Netherlands, and the destination of the cash flows. 

Term and format: All future international rulings will in principle have a maximum term of five years. Only in exceptional cases (long-term contracts, for example) can this term be extended to 10 years, as is currently the case for APAs. The format of rulings with an international character will become more rigid because a fixed format will be used. It appears that it will be in the form of a settlement agreement. 

KPMG observation

The measures mean that taxpayers that only establish themselves in the Netherlands for tax reasons and have no economic nexus with the Netherlands will no longer obtain a tax ruling from the Dutch tax authorities. The “economic nexus” concept is expected to raise the threshold for obtaining advance certainty above the current substance requirements. Existing rulings and rulings that are issued up to the time that the updated ruling practice is implemented will not be affected by the new policy. The fact that rulings will no longer be issued for certain structures does not mean that these structures will disappear, since the law will not change because rulings are no longer issued. 

The Lower House will meet with the Deputy Minister of Finance in January 2019 to discuss tax avoidance. During this meeting, the letter about the updated ruling practice will also be discussed. The Deputy Minister has expressed a wish to implement the amendments as of 1 July 2019 (also to be the effective date). The half-yearly report for April 2019 will provide more clarity about the progress of the implementation. 


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

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