The following translation was not made by us, but was taken from the website of the Dutch Ministry of Finance - Dutchtax.net
The State Secretary for Finance has decreed as follows.
For the purpose of this decree, the term "entities providing intra-group financial services" (hereinafter referred to as service entities) is used to refer to entities the activities of which consist largely of, either legally or actually, directly or indirectly, and based on related transactions amongst entities that form part of the same group, the receipt and the (on)payment of interest and/or royalties under whatever name and of whatever nature. Activities related to the ownership of participations are not taken into account in assessing whether or not an entity's activities consist primarily of the activities described in the preceding sentence.
The term "group" is used with respect to the taxpayer together with related entities, as defined in Article 10a, Paragraph 4, of the Corporation Tax Act 1969, and related natural persons, as defined in Article 10a, Paragraph 5, of the Corporation Tax Act 1969. Transactions are regarded as related if they are arranged as a complex transaction, the results are mutually dependent or if in any other way a connection exists between the transactions.
No advance certainty will be granted to a service entity on the tax consequences of all of the contemplated related transactions as defined in paragraph 1 above, if:
a. the service entity does not meet one or more of the requirements listed in the Annexe in respect of the existence of a real presence (substance) in the Netherlands.
No advance certainty will be granted to a service entity on the tax consequences of related transactions as defined in paragraph 1 above, if:
b. the functions performed by the service entity in relation to these specific related transactions do not entail on balance any real risk (see paragraph 6 below).
This means that, if a service entity does not meet the requirements referred to in point a. with respect to a real presence in the Netherlands, no advance certainty will be granted for all of the contemplated transactions qualifying under the description in paragraph 1 above, regardless of whether or not the transactions in question entail any real risk as described in point b., and regardless of whether or not the taxpayer gives his consent to the spontaneous exchange of information to the country of source.
When a service entity does meet the requirements referred to in point a. in relation to a real presence in the Netherlands but fails the requirement referred to in point b., the service entity will not be granted advance certainty with regard to the specific related transactions that do not meet the requirement referred to in point b.. Contrary to the provisions of point b., advance certainty may nevertheless be granted in such situations if the taxpayer gives his consent, in a determination agreement with the tax administration, to the spontaneous exchange of information to the country of source.
For the purpose of the application of point b., risks that have been transferred to third parties (i.e. unrelated entities) shall be treated as the risks of the service entity. In general, this will lead to the result that groups that concentrate their treasury activities in one or more departments will be deemed to be running a real risk with regard to all of the financial transactions conducted by these treasury departments, given that one of the these departments' basic tasks is transferring to third parties the net risk run by the group regarding all of the financial transactions for which the department in question is responsible. The responsibility of the centralised treasury department will generally consist of independently managing the risks related to all of the financial transactions conducted by (an independent part of) the group. Where a service entity's responsibility does not extend to independently managing the risks as described above, this is an indication that the entity does not perform an active treasury function. In these situations, further action will be required to determine whether or not real risk is being incurred with respect to the related transactions as defined in paragraph 1.
Point b. of paragraph 2 states that no advance certainty will be given on any related transactions as described there, unless the applicant gives his consent, as part of the determination agreement, to the spontaneous exchange of information to the country of source. This consent also includes a confirmation by the applicant that the information described in the advance pricing agreement or advance tax ruling that will be exchanged is not subject to one of the exemption clauses specified in Article 13, Paragraph 3, of the International Assistance with Levying Taxes Act (Wet op de internationale bijstandsverlening bij de heffing van belastingen, WIB). Once an applicant has committed himself to this position in the determination agreement, the grounds for an objection or appeal on the basis of this article, against the notification in which the exchange of information is announces, will cease to exist.
The fact that no advance certainty is granted in the situations described in paragraph 2, points a. or b. does not restrict taxpayers from conducting the financial transactions described under these points without any advance certainty about their tax consequences. Here too, the spontaneous exchange of information will take place to the country or countries in question. In situations where the requirements for a real presence in the Netherlands (see paragraph 2, point a.) are not met, information on a taxpayer's actual circumstances with regard to the requirements set out in the Annexe will be disclosed to other countries for which this may be relevant. In situations where structures are implemented as described in paragraph 2, point b., the information that is to be disclosed will relate to transactions performed or to be performed and the character of the entity.
The exchange of information will take place following a request for a certificate of residence or when, during the handling of a taxpayer's tax assessment, the suspicion arises that a country may have an interest in the information, but in any event no later than the date on which the corporation tax assessment is formally assessed. Thereto, the tax inspector will forward the relevant information, with a statement of the name of the country or countries concerned, to the Fiscal Information and Investigation Services (FIOD) in Haarlem. FIOD Haarlem International will determine whether or not the exchange of the information is in accordance with the relevant statutory regulations and treaty provisions, for example, whether or not it would constitute a breach of Article 13, Paragraphs 1 and 2, of the WIB.
For the transactions described in paragraph 2, point b., no credit for foreign withholding tax will be provided, as the financial service entity in fact operates as an intermediary, which means that the received cash flows do not form part of that entity's Dutch tax base.
In the light of improving the international transparency of the treatment of such entities in the Netherlands, the government is considering codification of this matter.
No advance certainty is given in the cases described in paragraph 2, points a. and b., as the elements referred to in these points form an indication that the provision of advance certainty would constitute a breach of good faith between treaty partners. In addition to the elements described specifically in points a. and b., any requests for advance certainty should be assessed in more general terms by reference to the Decree of 21 July 1995 (No. AFZ94/4519M) on fiscal implementation policy, standpoint provisions and appeals policy (as amended by the Decree of 26 January 1997 (No. AFZ94/4609M) and as further expanded in the Decree of 30 March 2001 (No. BOB2001/698M) on advance certainty and good faith between treaty partners).
When the functions performed by the service entity that are related to the related transactions described in paragraph 1 do not entail any real risk on balance, advance certainty may be given only if, as part of the determination agreement in which the advance certainty is set out, the taxpayer gives his consent to the spontaneous exchange of information to the treaty partner. It is, therefore, important to determine to what extent the service entity bears a risk in relation to these related transactions.
The risks that can relate to the transactions described in paragraph 1 consist, in particular, of credit risk (debtor and foreign exchange risk), market risk and operational risk. If the only risks born by the service entity are operational risks, this will generally not lead to the presence of real risk as defined in this decree. The extent to which the service entity bears a risk will translate itself primarily into the possibility that the equity held by the service entity to secure its assets could be affected. The decisive factor in assessing whether or not and to what extent a service entity is bearing real risk is therefore the question of whether or not and to what extent the service entity is bearing one or more of the above risks and whether or not the service entity maintains sufficient equity to be able to carry those risks.
A service entity, the activities of which consist of lending money, is regarded as bearing real risk if the amount of the equity that is required for it to be able to carry the risks is at least equal either to 1% of the nominal value of the loan or to an amount of EUR 2 million (NLG 4,407,420). If, therefore, the equity a service entity should maintain to adequately secure the money-lending activity concerned is at least equal either to 1% of the nominal value of the loan or to an amount of EUR 2 million, whichever is lower, the service entity in question is deemed to be bearing a real risk, provided that the applicant is able to show that there is a real possibility of it having to utilise this equity if the risks related to the related transactions materialise in practice.
The sole activity of a service entity (SE) consists of the lending of EUR 100 million to X, a related entity. The equity of SE amounts to EUR 1.5 million. In addition, SE borrows, for the purpose of financing the issue of this loan, an amount of EUR 98.5 million from a related entity, Y. SE's parent company (PC) has given Y a guarantee that it will repay the entire loan if SE defaults on its repayment obligations. The first event that occurs if SE's credit risk (i.e. the debtor risk) materialises (i.e. X is unable to meet its repayment obligations) is that SE will be forced to utilise its own equity. The guarantee given by PC will take effect only if SE's equity is not sufficient to cover the repayment obligations. As SE maintains equity against the loan that is higher than 1 per cent of the nominal value of the loan and there is a real possibility that this equity could be affected when the risks born by SE (i.e. the debtor risk in this case) materialise in practice, SE may be regarded as bearing a real risk.
The sole activity of a service entity (SE) is lending EUR 400 million to X, a related entity. The equity of SE amounts to EUR 3 million. In addition, SE borrows an amount of EUR 397 million from Y, another related entity, for the purposes of financing the issue of the loan. SE's parent company (PC) has given a guarantee that it will repay to SE the entire outstanding loan to X if X defaults on its repayment obligations. If SE's credit risk (i.e. the debtor risk) materialises (i.e. X is unable to meet its repayment obligations), SE will be able to invoke PC's guarantee and obtain repayment of the loan. Although SE has equity in excess of EUR 2 million, there is no realistic possibility that this equity will be affected if X defaults on its repayment obligations. For this reason, SE may not be regarded as running a real risk.
For the determination of an arm's length remuneration for entities providing intra-group financial services, see the Transfer Pricing Decree of 30 March 2001 (No. IFZ2001/295M).
For information on the competence with respect to service entities as referred to in this Decree, see the Decree of 30 March 2001 (No. RTB2001/1195M) on Advance Pricing Agreements (APAs), Advance Tax Rulings (ATRs), financial services, conduit companies, the International Investors Desk and Rulings. Organisation and Jurisdiction Rules (no English translation available).
This decree enters into force on 1 April 2001.
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Last reviewed 12 August 2004