Political agreement on tax package

In a meeting on 21 January, the EU Ministers of Finance (the "Council") reached political agreement on the so-called Tax Package and committed itself to formally adopt the Tax Package before the European Council in March 2003.Click here for further information on the meeting itself.

Savings taxation
Twelve Member States are due to implement automatic exchange of information concerning interest income derived from savings in another Member State from 1 January 2004, whereas Austria, Belgium and Luxembourg will apply a withholding tax on savings held by residents of other Member States (15% from 1.1.04, 25% from 1.1.07 and 35% from 1.1.10) and share the revenue with the country of residence (handing over 75% and keeping 25%). The Council agreed that the European Community should, on the basis of unanimity, enter into an agreement with Switzerland and that that the European Community should enter into similar agreements with Liechtenstein, Monaco, Andorra and San Marino.

Code of Conduct
The Council agreed to extensions beyond the end of 2005 of benefits of the following measures:

• - Belgium: Co-ordination Centres, extension to 31 December 2010
• - Ireland: Foreign Income, extension to 31 December 2010
• - Luxembourg: 1929 Holding Companies, extension to 31 December 2010
• - Netherlands: International Financing, extension to 31 December 2010
• - Portugal: Madeira’s Free Economic Zone, extension to 31 December 2011.

VAT on conduit loans

Although Dutchtax.net does not focus on Value Added Taxation, the following could be noteworthy for readers dealing with group financing.
The case concern a Dutch top holding with a Dutch intermediate holding and various Dutch and European subsidiaries. In 1997 the top holding issued notes for DM 200 mio and onlent the proceeds to local and foreign subsidiaries. The intermediate holding assisted the subsidiaries to borrow another DM 683 mio from banks. Various lawyers, accountants and banks advised in both transactions and some of their fees were subject to VAT in the Netherlands. The total fees were charged on to the subsidiaries and the top holding claimed a refund of the VAT of NLG. 1.784 mio (Euro 0.810 mio), which the inspector denied.

The High Court of Arnhem decided on 11 November 2002 that the top holding was entitled to the refund (even if charged through to the subsidiaries on a prorated basis), since the above services retained their character when charged through to the subsidiaries. The considerations of the Court do provide an indication of the steps to be followed to attain similar results in other financing structures.

Deemed residence rules inheritance tax contravene community law

Again an article on a tax not normally dealt with by Dutchtax.net. However, since we do cover the legislation referred to in prospectuses on bonds and share issues, we decided to list this item too.
The case concern a Dutch citizen that emigrated to Belgium in 1993 and died in 1997. For purposes of Dutch inheritance tax, a Dutch citizen is deemed to be resident in the Netherlands until 10 years after emigration from the Netherlands. However, on 12 December 2002, the High Court in s' Hertogenbosch determined that this rule contravenes the principle of freedom of movement of capital in the EU, set aside this rule and determined that no additional Dutch inheritance tax was due. Readers are recommended to review the considerations of the Court (e.g. the fact that the Belgium inheritance tax was 'reasonable', whilst the Italian inheritance tax may not be from a Dutch point of view) before including references to this case into prospectus texts.

Realisation of profits in sight of emigration

In a number of cases published this month, both the Dutch Supreme Court and a number High Courts decided on the following scenario: Dutch residents having their own companies (BV's) and significant pension rights from those companies, emigrate from the Netherlands. The BV's emigrate as well and shortly thereafter the individuals waive their pension rights.

The question is whether the BV's profit from the waiving of the pension rights is taxable in the Netherlands. The tax authorities argue that such is the case, since the waiving is expected at the time of emigration and therefore the pension liabilities have to be marked down from their original values. On 31 January 2003, the Dutch Supreme Court confirmed a decision of the High Court of 's Hertogenbosch that there is only a taxable release of the pension provisions if it certain or almost certain that (a part of) the pension rights will not be claimed; the mere intention of a creditor (the pensioner) to waive its receivable is not sufficient.
This seems to be in contradiction to the High Court in the Hague's decision of 1 October 2002, in which it was decided that no independent meaning should be given to the possibility that the intention to waive the pension rights only arose after emigration of the BV. That Court also decided that in determining the value of the assets and liabilities at the time of emigration, the existing expectation that the pensioners would waive their pension rights, should be taken into consideration.
In practice, the outcome of these cases is likely to strongly depend on facts and circumstances, such as the existence of step plans, etc.

These cases may also have significance for the taxation of other entities emigrating from the Netherlands or removing their permanent establishments from the Netherlands (art. 15c and 15d CIT), e.g. if such an emigration is followed by the waiving of receivables.

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.