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Netherlands Announces Stricter Rules For Tax Rulings

Friday, November 30, 2018

On November 22, 2018, the Dutch Ministry of Finance announced changes to the country's tax ruling regime intended to ensure that only taxpayers meeting certain substance requirements are granted tax rulings.

According to the announcement, tax rulings will not be issued to taxpayers if the sole purpose of the ruling is to avoid either Dutch or foreign tax. This restriction includes rulings on transactions with low-tax jurisdictions having a corporate tax rate of less than nine percent and with jurisdictions included on the European Union's tax blacklist.

Substance tests must already be met in some cases of companies seeking a tax ruling in the Netherlands, but not all. Such tests include that at least half of the company's board reside in the Netherlands. Under the new rules taxpayers will have to meet stricter economic nexus requirements in order to obtain a tax ruling. These include that the company has a sufficient number of employees to carry out its tasks, that staffing levels are in proportion to the rest of the group, and that the level of the company's costs are in proportion to its activities. The company's activities must also relate to those carried out by the group as a whole.

The Government also plans to increase the transparency of the tax ruling process, and will publish an anonymous summary of international rulings immediately after they are issued, in addition to an annual tax ruling report. A panel of independent experts will also examine whether the rulings have been issued within the law on an annual basis, the Ministry said.

In another key change, tax rulings will have a maximum validity of five years. This can be extended to 10 years under "exceptional circumstances," the Ministry explained.

The Government intends that these new rules will be effective from July 1, 2019.