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Senior Tax Manager, TMF Netherlands
23 July 2019
Read time
2 minutes

Impact of ECJ ‘Danish cases’ on tax treatment of holding companies

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Foreign intermediate holding companies need to assess the impact of recently announced widening of the Dutch anti-abuse tax legislation in response to landmark ECJ rulings.

The Dutch State Secretary of Finance (“State Secretary”) recently clarified his opinion on the EU compatibility of Dutch tax laws and announced changes in the Dutch withholding tax exemption and non-resident corporate income tax rules, to be published on Budget Day, 17 September 2019.1 The announcement follows the judgement of the European Court of Justice (ECJ) in six Danish beneficial ownership cases and their interaction with Dutch tax legislation applicable to (intermediate) holding companies.2


In 2018, amendments to the anti-abuse rule in the Dutch Dividend Withholding Tax Act shifted responsibility to the directors of the distributing company, as it is the distributing company that must determine whether the beneficiary of the dividend meets the requirements of the withholding tax exemption, and if so, file a notification form. The recently announced amendments will place extra responsibility on the directors of the Dutch entity.

According to current legislation, the dividend withholding tax exemption is only available to foreign shareholders of a Dutch entity if the anti-abuse rule does not apply. According to this anti-abuse rule, the withholding exemption will not be granted if the following (cumulative) tests are met:

(one) of the main purpose(s) to hold a (direct) interest in the Dutch entity is the avoidance of Dutch dividend withholding tax (‘subjective test’), and
the structure or transaction is considered to be artificial (‘objective test’).
The objective test is considered not to be met (in which case the anti-abuse rule does not apply and the withholding tax exemption is available) if certain substance requirements are met by the foreign shareholder. These substance requirements include having at least €100,000 in salary costs and an own office space.

Amendments to come

The State Secretary considers that the Dutch anti-abuse rules are generally compatible with the Danish Cases, but slight amendments in the application are, in his view, necessary. This means that the current substance requirements may no longer be considered a ‘safe harbour’, but will rather function as mere indicators for the non-abusive character of a specific case.

This would give the Dutch tax authorities the opportunity to demonstrate that a structure is abusive, leading to a possible rejection of the dividend withholding tax exemption. According to the State Secretary, an abusive situation may exist if, for instance, dividends received by the intermediary holding company are, very soon after their receipt, passed on to other entities or the payroll expenses of the intermediary holding companies are disproportionate to the income received by them.

The Danish cases place an obligation on EU Member States to combat abuse of EU Directives (and national legislation based thereon – in EU situations at least). In this context, the question was raised whether taxpayers would still be entitled to tax treaty protection where a structure could be considered to be abusive under the EU anti-abuse principles even in the absence of national anti-abuse legislation. The State Secretary responded that, based on the Danish Cases, EU Member States have only the obligation to challenge abusive use of tax benefits derived from EU law but this does not mean that taxpayers would no longer be entitled to (similar) benefits under double tax treaties.

Such treaty protection may be limited or denied by invoking the Principal Purpose Test ("PPT"), as introduced in most Dutch tax treaties following the Multilateral Instrument ("MLI") initiative which will be effective in most cases from 1 January 2020. The State Secretary indicates that the Danish Cases may also influence the interpretation of the PPT. 

Key dates

The amended legislation should enter into force on 1 January 2020 and will apply to both EU and non-EU intermediate holding companies. The new anti-abuse measures are likely to also be relevant for the envisaged conditional withholding taxes on interest and royalties.

Next steps

Foreign intermediate holding companies that currently rely on the relevant substance requirements to qualify for the dividend withholding tax exemption in the Netherlands should carefully assess the impact of the new legislation. Taxpayers should review their position in view of any upcoming dividend distributions to be made by a Dutch entity or disposition of shares in a Dutch entity. Moreover, Dutch entities should take a closer look at their substance in the Netherlands to mitigate potentially adverse consequences.

TMF Netherlands can help you rapidly identify the potential impact of the expected changes on your company and also prepare your withholding tax notifications and returns in accordance with the regulatory requirements. Need more information? Contact us today.

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  1. Antwoorden op de vragen van het Lid Snels over de Arresten van het Hof van Justitie, 17 juni 2019,
  2. The four joined cases N Luxembourg 1 (C-115/16), X Denmark (C-118/16) and C Danmark 1 (C-119/16) and Z Denmark case (C-299/16) and the two joined cases T Danmark (C-116/16) and Y Denmark (C-117/16)
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