March 26, 2021
Dutch Government releases legislative proposal introducing withholding tax on dividend payments to low-taxed jurisdictions, hybrid entities or in certain abusive situations as of 2024
On 25 March 2021, the Dutch Government published a legislative proposal introducing a withholding tax on dividend payments to low-taxed jurisdictions, effective as of 1 January 2024. The withholding tax will also apply in the case of abusive situations and is an extension to the already enacted withholding tax on interest and royalty payments to low-taxed jurisdictions or abusive situations. The withholding tax rate is equal to the headline corporate income tax rate, which is currently 25%. This withholding tax will exist together with the "normal" dividend withholding tax of 15%, although an anti-cumulation rule will apply, effectively limiting the total tax on dividends to low-taxed jurisdictions, hybrid entities or in abuse situations to 25%.
The implications of the proposed legislation must be carefully assessed on a case-by-case basis.
Withholding tax on dividends
If enacted, a withholding tax (WHT) of 25% will be introduced as of 1 January 2024 on dividends (deemed) paid by a Dutch corporate taxpayer to a related entity resident if:
Low-tax jurisdiction or EU list of non-cooperative jurisdictions
Payments to affiliated entities resident in a jurisdiction with a statutory tax rate lower than 9% (a low-taxed jurisdiction) or a jurisdiction on the EU list of non-cooperative jurisdictions (the EU List) are in scope of the conditional WHT. The Dutch Government publishes a list at the end of each year with jurisdictions that qualify as low-taxed jurisdictions or are included on the EU List at that time. Only jurisdictions that are included on that list for the preceding calendar year are in scope of the conditional WHT.1
Hybrid entities are entities that are considered transparent for one jurisdiction and non-transparent for another jurisdiction. An example is the situation in which a Dutch company distributes a dividend to an entity that is transparent in the jurisdiction under which laws it is formed, but non-transparent according to the jurisdiction where the participant in the entity is resident.
The WHT may also apply on dividend payments in certain abusive situations, including (deemed) payments to intermediate holding companies. For example, in the case of an intermediate holding company located in a non-low taxed jurisdiction that is considered a conduit (e.g., that lacks economic substance) between the Dutch company distributing the dividend and an (ultimate) recipient in a low-taxed jurisdiction. Having relevant substance in such a conduit company provides a presumption of proof that the arrangement is not abusive.
The WHT is due on payments to affiliated entities. Entities will be considered affiliated in the following cases:
An interest is a "qualifying interest" when a holder of such interest can exercise control over decisions of the entity.
This should be determined based on the relevant facts and circumstances. An interest representing 50% or more of the statutory voting rights will normally be a qualifying interest, but also lower interest percentages can result in a qualifying interest being present. Whether a group of shareholders qualify as such cooperating group of shareholders depends on the facts and circumstances, such as coordinated group decisions.
Definition of dividends
The WHT is due on (deemed) distributions out of profit, profit reserves or equivalent payments. This is generally in line with the Dutch Dividend Withholding Tax 1965.
The WHT obligation is due when a dividend is declared and payable.
The rate of the WHT equals the headline corporate income tax rate, currently a rate of 25%. A credit is given for Dutch dividend withholding tax (anti-cumulation).
Timing and next steps
The proposal is currently under review by the Dutch Parliament and is subject to the regular parliamentary proceedings. No further detail has been announced yet on the timeline and when this proposal will be discussed by Dutch Parliament.
For additional information with respect to this Alert, please contact the following:
Ernst & Young Belastingadviseurs LLP, International Tax and Transaction Services, Amsterdam
Ernst & Young Belastingadviseurs LLP, International Tax and Transaction Services, Rotterdam
Ernst & Young LLP (United States), Netherlands Tax Desk, New York
Ernst & Young LLP (United States), Netherlands Tax Desk, Chicago
Ernst & Young LLP (United States), Netherlands Tax Desk, San Jose/San Francisco
1 As of 1 January 2021, the following jurisdictions are included on the list: American Samoa, Anguilla, Bahamas, Bahrain, Barbados, Bermuda, British Virgin Islands, Cayman Islands, Dominica, Fiji, Guam, Guernsey, Isle of Man, Jersey, Oman, Palau, Panama, Samoa, Seychelles, Trinidad and Tobago, Turkmenistan, Turks and Caicos Islands, United Arab Emirates, Vanuatu, and the US Virgin Islands.