State Secretary denies worsening of Dutch investment climate/promises relief distressed debtors

Following a letter written by a number of large Dutch law firms and question thereon in parliament, the State Secretary of Finance regrettably denied that current tax legislation and policy is harming the Dutch investment climate. According to him, there are no signals that companies with real investments are going to other countries because of the tax measures in the Netherlands. I believe otherwise and would like to invite readers to go to Dutch.net for more information and the chance to give us your opinion, based on your own experience in practice (anonymously if you wish).

Guidance on Capital Duty published

In a Question and Answer publication, the State Secretary of Finance issued guidelines on 9 December on the levying and exemption from capital duty under certain circumstances. The position of taxable limited partnerships, legal mergers, exchanges of shares, shares mergers and triangular mergers are covered. A translation of excerpts from the publication is available on our website.

Supreme Court rules on allocation of shares to Dutch PE

Since the Netherlands does not levy a branch profit tax, it is possible to allocate the shares in a Dutch subsidiary to a Dutch permanent establishment of the shareholder, thereby avoiding Dutch dividend withholding tax on profit distributions from the Dutch subsidiaries (Dutch PE's are entitled to the participation exemption too). The Dutch State Secretary issued a Decree a year ago with certain conditions for allowing such structures. In the case at hand the High Court of Den Bosch decided that the shares in a Dutch subsidiary should not automatically be allocated to the Dutch PE of the shareholder. However, it failed to substantiate its decision properly and the Supreme Court has referred the case to the High Court of Arnhem for further investigation. Since the shareholder had no other personnel but its Dutch personnel, it is not unlikely that it may still successfully be argued that the shares in the Dutch company should be allocated to the Dutch PE of the UK shareholder. However, in cases like these, there is always a danger that the Dutch authorities may successfully argue that the UK company has so little substance in the UK, that it should be treated as being resident in the Netherlands instead, whereby Dutch dividend tax would be due on profit distributions of that UK company.

Brief points of interest

• The draft legislation discussed in our December newsletter has been adopted by the First Chamber on 9 and 10 December and most of it entered into force on 1 January 2003.
• On 13 December, the State Secretary of Finance announce draft legislation to reverse a decision of the Dutch Supreme Court of 24 May 2002 that the acquisition costs of a Dutch participation is deductible in the year of the acquisition. The legislation will have retro active effect.
• In view of the current EU investigation of the possible prohibited state aid character of the Dutch group finance company regime, no more requests for the regime can be filed as of 6 December.
• Finally, in a decision of 20 December, the Dutch Supreme Court decided that if a company redeems its shares, the accounting treatment of the financing of the repurchase must be followed for tax purposes and that the financing is not spread on a pro rated basis over that company's share capital, share premium and profit reserves. In the case at hand, this meant that there was sufficient share premium left for the company to issue stock dividends free from dividend withholding tax.

Disclaimer

Please note that although care has been taken to present the facts given in this newsletter and our site, www.Dutchtax.net, as accurately as possible, neither of these sources should be relied upon for taking any action without prior consultation with a Dutch tax professional. For further information, see our disclaimer.