In addition to existing global, European, and national initiatives against tax avoidance, the Dutch Ministry of Finance earlier this year announced the introduction of two additional substance requirements in a policy letter on tackling tax avoidance and tax evasion. The additional substance requirements would apply to Dutch resident entities to obtain an advance tax ruling or advance pricing agreement. Furthermore, Dutch resident entities with international holding activities and Dutch resident entities engaged in intragroup financing or licensing activities would have to comply with the additional requirements in order to avoid spontaneous exchange of information by the Dutch tax authorities with relevant foreign tax authorities.
The current substance requirements are as follows:
- At least half of the total number of statutory and otherwise authorized members of the board must reside in the Netherlands;
- The board members that are residing in the Netherlands must have sufficient professional knowledge to exercise their tasks;
- The entity must have qualified personnel that can sufficiently register and perform the transactions concluded by the entity;
- The board decisions must be taken in the Netherlands;
- The main bank account(s) of the entity must be controlled from within the Netherlands;
- The administration must be kept in the Netherlands;
- The business address is in the Netherlands;
- The entity should, to the best of its knowledge, not be regarded as a tax resident of another jurisdiction;
- The entity runs real risk in connection with the loans or legal relationships and the related loans or legal relationships underlying the received and paid interest, royalties, lease, or rent payments;
- The entity must have a sufficient equity amount considering its risks.
In addition to the current substance requirements, the State Secretary has announced the following two requirements:
- The Dutch resident entity must incur annual salary costs of at least 100,000 Euro; and
- The Dutch resident entity must have an office space at its disposal in the Netherlands which is in fact used to carry out its functions for at least 24 months.
The new substance rules will likely enter into force as of 1 January 2019 for entities to obtain an advance tax ruling or advance pricing agreement. Also, existing tax rulings are expected to be terminated if the applicable Dutch resident entities do not fulfill the new requirements as per 1 January 2019. It is still unclear when the new rules will enter into force for Dutch resident entities with international holding activities and Dutch resident entities engaged in intragroup financing or licensing activities.