After having worked (well) for many years with standard rulings issued in the 1990's, the Dutch ruling practice got a thorough overhaul in 2001, for a large part because of the criticism on the Dutch tax practice under the so-called Primarolo Report in the EU fight on deemed harmful tax competition. The basis for the current ruling practice is laid down in 8 Decrees of the State Secretary of Finance, dated 30 March 2001. The eight decrees were:
The Dutch ruling practice is now split into two parts, being Advance Pricing Agreements ("APAs") and Advance Tax Rulings ("ATRs"). This memorandum deals primarily with the Advance Tax Rulings. This memorandum uses the term "rulings" to refer both to APAs and to ATRs.
The decree on jurisdiction states that the tax inspectorate in Rotterdam is competent for all tax affairs of taxpayers requesting rulings on companies providing intercompany services (as defined in that decree) and holding, finance and royalty companies. The same inspectorate must also be approached (via the local inspector) for a binding advice when taxpayers with other active business activities also requires APAs or ATRs. Finally, the same inspectorate also continues to have sole jurisdiction for special agreements on the tax treatment of substantial (at least 4.5 mio Euro) first time inbound investments.
There are some common pieces of information required and other conditions under both rulings. In short these are:
ATRs are generally granted for four years; the period for APAs will generally be four to five years, although exceptions may be made for fixed contracts over a longer period of time.
This decree in fact replaces the old interest and royalty rulings.
Definition of intercompany services
These are entities of which the activities on the basis of connected transactions legally or actually, directly or indirectly, largely consist of the receipt and payment of interest and royalties within the group under any name or in any form. In determining whether the entity's activities largely consist of those mentioned activities, the activities with regard to the holding of participations are disregarded.
Conditions
The entity must fulfill certain minimum substance requirements. Under the original decrees, it also had to run a real economic risk as defined in the decree. This latter condition has meanwhile be incorporated into article 8c of the Corporate Income Tax Act. The decree dictates that no ruling will be given if the substance requirements are not fulfilled; a ruling may still be acquired if no real economic risk is run, provided that the taxpayer agrees to the spontaneous exchange of information (as described in the applicable law) with the source country of the interest or royalties.
Substance requirements
In an annex to this decree, the following conditions are listed as minimum substance requirements:
For more information on how this decree effects the current ruling practice, please see our detailed memorandum on ruling policies.
In this decree it stated that no ruling will be granted if this concerns an abuse of law, or if the granting of such a ruling would be in contravention of the good faith that (tax) treaty partners owe each other. This means among others that a ruling will not be granted if the tax inspector suspects that the interest of a treaty partner or another international interest will be harmed thereby. A strong indication thereto would be structures or transactions which contain elements that would have been attacked under Dutch law (a sadly misguided criterium, since other tax systems may not look at all like the Dutch system - Dutchtax.net). This indication can nonetheless be set aside if, for instance, the taxpayer can show that the other State is fully informed about the structure or transactions, unless the inspector suspects that information is misrepresented in the other State.
In a continued battle against hybrid structures this decree reconfirmed previous policy. (Dutchtax.net will never agree to the notion that one country has the right to tax that which it believes should have been taxed in another country, but was not. The only achievement of such a policy is chasing away business to other countries not holding such views.)
First, it is stated that no advance certainty is given on the treatment of hybrid financing structures in which international differences of qualification are used and where it is likely that the saving of tax is the only or most import reason for the transaction. Such transactions were:
In order to get a unified tax policy on these structures, the Rotterdam tax inspectorate has been appointed to deal with all ruling requests on hybrids.
It must be pointed out that the case law referred to here above has since been replaced by new legislation on profit sharing loans.