World wide there is a strong emotional focus on the use of letterbox companies when structuring multinational operating companies. In these discussions, the Netherlands is often mentioned because of its favourable tax regime, its tax treaties and the possibility to get advanced tax rulings from the Dutch Tax Administration on certain topics. In order to be able to apply these advantages the Netherlands has set certain substance requirements. It now looks that the current requirements will be tightened to counterattack the arguments that the Netherlands facilitates pure letterbox companies.
In November 2016, the State Secretary for Finance came up with the following three suggestions to tighten the substance requirements for letter box companies:
1.A company can only get an advance tax ruling if it meets the following additional conditions:
•Require a minimum expense amount to indicate a presence in the Netherlands;
•Require a minimum number of employees;
•International holding companies need to have more own equity than the 15% that is currently required.
2.Dutch Tax Administration will exchange information on holding companies that do not meet the substance criteria. Currently this is only done for financial service companies.
3.To increase the minimum risk threshold of 1% of its outstanding loans or €2 million in order to be able to apply the treaty withholding tax rates on interest and royalties.
On January 25 2017, the Dutch Parliament requested the government draft a proposal that is in line with the aforementioned. Government was asked to particularly focus on the creation of employment and the amount of salary paid.
Conclusion: The substance requirements in the Netherlands will be tightened with more focus on local employment and the amount of the salaries that are paid. If you have an international holding company in the Netherlands you may want to check whether the current status of the substance of the company is in line with the aforementioned.
If you need to know more about this topic please contact Corney Versteden of HLB Van Daal & Partners in the Netherlands.