Netherlands: Domestic Corporate Taxation
Withholding Taxes on Outgoing Dividends
Under the EU parent/subsidiary directive dividends paid by Dutch subsidiaries to EU parent corporations are exempt from Dutch withholding taxes provided the EU parent corporation has held 10% (15% prior to 2009) of the shares in the Dutch subsidiary for at least 12 months. Where a foreign parent is not covered by the EU parent/subsidiary directive the terms of a double taxation treaty will often substantially reduce the amount of withholding taxes deducted on the outgoing remittance. Dutch holding companies can rely on an extensive network of double taxation treaties.The Netherlands has over 100 tax treaties in place. The greater a country's network of double taxation treaties the greater its leverage to reduce withholding taxes on outgoing dividends. An elaborate network of double taxation treaties is thus a key factor in the ability of a territory to develop as an attractive holding company jurisdiction. Holland has taxation treaties with its metropolitan offshore territories, Netherlands Antilles and Aruba, under which outgoing dividends are subject to withholding tax of 5% under certain circumstances. It is rare for high-tax countries to have such arrangements with offshore territories.
The Dutch holding company regime allows a tax deduction of expenses, including interest on acquisition loans. This means that the Dutch holding company is able to receive tax free dividends and capital gains originating from its subsidiaries, and at the same time is allowed to deduct expenses, including interest on loans.The interest deduction is subject to limitations, but in essence the regime offers the possibility to create tax losses which can be offset against other sources of income. The ultimate effect can be that at the Dutch level effectively very little or no tax at all is due on taxable sources of income, such as interest, royalties and service fee income. Limitations apply to the carry forward or carry back of tax losses by holding/financing companies. In essence, the tax losses which originate from a year in which the main activity of the company is the holding of shares or group financing activities may only be carried back or carried forward to tax years in which the company had or has similar activities. Both the nature of the activities and the volume of the activities (balance sheet ratios) are relevant.
Also, a general thin capitalization provision applies to interest (and other funding) expenses originating from qualifying intra-group loans. The maximum debt-equity ratio is 3:1; there are special rules for calculating the debt-equity ratio.