Dutch committee reports on bridge companies and associated tax policy options – MNE Tax
By Jian-Cheng Ku, GabriÃ«l van Gelder and Rhys Bane, DLA Piper Nederland NV
On November 22, a committee formed by the Dutch government presented its conclusions on the presence of bridge companies in the Netherlands and on the fiscal and non-fiscal measures to be taken against these companies.
The committee was formed earlier this year following a call by several MPs to investigate the presence of transmission companies in the Netherlands, due to media attention regarding âletterbox companiesâ. The committee is made up of (former) civil servants and academics.
The committee’s report outlines policy options the Dutch government might want to pursue. Given the large number of anti-abuse rules introduced into Dutch tax law in recent years, the report contains only one policy recommendation for Dutch tax law. The other recommendations concern European and international tax law and, in particular, financial reporting standards.
Internal fiscal measures
The only national tax measure recommended by the committee is the abolition of the safe harbor rule for so-called âfinancial services entitiesâ. Financial services entities are businesses that facilitate business-to-business financing and licensing activities. For these activities, a company must have sufficient equity capital, an open standard. However, a safe harbor is available if 2 million euros (US $ 2.27 million) of equity has been provided. The committee recommends the abolition of this safe harbor.
In view of previous measures, such as the introduction of the principal object test in the multilateral instrument and the renewed Dutch regulatory policy, under which it is, in practice, not possible to obtain a decision only on inter-company financing and licensing activities given the lack of substance in the Netherlands, the number of financial services entities has decreased significantly (to get a ruling a taxpayer must have a ‘link economy âin the Netherlands).
If the government were to follow this policy recommendation, the impact would therefore have to be limited to the few financial services entities that still currently operate in the Netherlands.
International and European tax measures
Recommendations regarding international tax measures in the report include unilateral measures relating to the exchange of information, bilateral measures relating to tax treaties and multilateral measures at EU level.
The report contains two recommendations on the exchange of taxpayer information. The committee first recommends that the government extend the spontaneous exchange of information to financial services entities that do not meet the open standard of having sufficient capital and, potentially, to other financial services entities ( we do not know on what criteria).
The committee also recommends spontaneously exchanging information to the countries of origin where capital gains on the sale of shares are exempt under the Dutch participation exemption. This would allow the source country to assess whether it considers that the capital gains article should grant the right to tax in the Netherlands or whether the principal object test can be invoked by that source country.
The committee further recommends that the Dutch government include the principal purpose test of the multilateral instrument and the 2017 OECD Model Tax Convention in its new and existing tax treaties. This is already the negotiating position of the tax treaty adopted by the Dutch government and this recommendation should therefore not change anything.
The committee recommends that the Dutch government adopt a âproactive stanceâ vis-Ã -vis the proposed European directive against shell companies. The Committee seems to be of the opinion that multilateral measures are better than unilateral measures in this regard. This is something tax practitioners have also supported in recent years, as unilateral rules dramatically increase the complexity and burdens of tax compliance.
Finally, the committee recommends that the Dutch government advocate within the EU for a clear definition of EU anti-abuse doctrine. The Committee refers to the Danish cases in this regard for the purposes of amending the European Directive on Interest and Royalties and the European Parent-Subsidiary Directive.
National financial reporting measures
Most of the recommendations made by the committee are non-tax recommendations. The committee makes three recommendations on the publication of ultimate beneficial owner information. First, the committee recommends tightening up the rules regarding the inclusion of senior management as a functional ultimate beneficial owner in the event that there is no true ultimate beneficial owner. Second, the committee recommends making the existing information on the ultimate beneficial owner more searchable. Third, the committee recommends that the Dutch government take the position that information on the ultimate beneficial owner should be available worldwide (not just within the EU).
The committee also has two recommendations for the financial reporting rules. First, the committee recommends abolishing the â403 statementâ, under which subsidiaries of a group of companies can be exempted from preparing financial statements (if they are included in the financial statements of the parent company). Second, the committee recommends adding together the activities of different companies in the Netherlands to determine the size of the company. The size of the business affects the financial reporting standards that apply to a business.
The report contains several recommendations aimed at criminal activity facilitated with relay companies. The recommendation includes cracking down on illegal business service providers, further investigation of money laundering and the use of transmission companies, and international cooperation in combating the criminal use of transmission companies.
The final recommendation of the report is to deny access to bilateral investment treaties for transmission companies. Under most modern bilateral investment treaties, intermediary companies would already be excluded from protection. However, the committee recommends renegotiating bilateral investment treaties which remain accessible to relay companies.
The Government has taken note of the committee’s report. However, the current government will not make any proposals, as it has indicated that it is up to the next government. We expect the next government to be formed within a month or two, and at least some of the recommendations made by the committee to be presented as a legislative proposal by the new government in 2022.