On 23 February 2018 the Dutch State Secretary of Finance published a letter proposing (additional) Dutch substance requirements (including a ‘minimum-€100,000-wage-cost-criterion’ and ‘24-months-office-space-criterion’) for Dutch holding companies in international structures and Dutch financial services companies.
Effective as of 2014 the Netherlands applies minimum substance requirements for so-called ‘financial services companies’, i.e. Dutch group companies which are deemed to predominantly be engaged in intra-group financing, leasing and/or licensing activities. These companies need to disclose in their Dutch corporate income tax return whether they meet the minimum substance requirements which, among other things, require having at least 50% Dutch resident board directors, having qualified staff available for implementation and administration of the company’s transactions and ensuring management decisions are made in the Netherlands. If the financial services company does not meet (all of) the minimum substance requirements while claiming tax treaty benefits, the Netherlands may spontaneously exchange this information regarding the Dutch company with the relevant foreign tax authority (which could potentially result in denial of tax treaty benefits). These minimum substance requirements also apply to certain Dutch holding companies pursuing a ruling from the Dutch tax authorities.
The recently published letter announces plans (i) to introduce additional minimum substance requirements and (ii) to also introduce these for Dutch holding companies in international structures. The additional minimum substance requirements will involve a ‘minimum-€100,000-wage-cost-criterion’ and a ‘24-months-office-space-criterion’.
• The first additional condition requires the company to incur annual wage costs of at least € 100,000 with respect to its holding, financing or leasing function. o The letter mentions this condition to be derived from the recently enacted legislation on the new Dutch dividend withholding tax exemption regime. o In the context of the Dutch dividend withholding tax exemption regime parliamentary history mentions that it is not necessarily required for the (qualified) personnel to actually be employed by the company itself. Also wage costs of (qualified) personnel hired from other group companies or externally may be taken into account for fulfilling the ‘minimum-€100,000-wage-cost-criterion’.
• The second additional condition requires the company to have office space at its disposal in the Netherlands for a period of at least 24 months for performing its holding, financing or leasing activity. o In the context of the new Dutch dividend withholding tax exemption regime parliamentary history mentions that it is not sufficient to merely rent or own office space. The office space will actually need to be used for performing the holding, financing or leasing activities.
The above plans still need to be worked out in further detail. The letter does not mention any implementation date. It only expresses the intention to implement swiftly. In the longer run (anticipated for 2020) possibilities will also be explored for legislative changes denying application of the Dutch participation exemption regime in cases where a group’s presence in the Netherlands is limited to one or more (intermediate) holding companies lacking (sufficient) substance.
Many multinationals have group structures including Dutch holding and financing companies. These developments may increase costs for maintaining a Dutch group company. With its extensive and favourable tax treaty network and bilateral investment treaty network the Netherlands remains an attractive holding jurisdiction. Therefore, we recommend clients to review the impact of the proposed changes on their group structure and, if needed, explore alternatives for ensuring a sustainable and cost efficient Dutch holding structure going forward (e.g. by centralizing substance in the Netherlands or by engaging in Dutch group simplification restructurings to reduce the number of Dutch group companies and ease substance compliance requirements).