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Netherlands Begins International Tax System Review

Friday, September 28, 2018

The Dutch Government has launched a consultation exercise on plans to review the country's tax treaty policy and to draw up a list of low-tax jurisdictions for the purposes of enforcing incoming controlled foreign company (CFC) rules.

In a news release issued on September 25, the Ministry of Finance said that the measures are part of the Government's policy to prevent companies avoiding tax by using the Netherlands as a conduit for inter-company payments to low-tax jurisdictions.

In line with the requirements of the European Union Anti-Tax Avoidance Directive, the Netherlands plans to introduce a CFC rule effective from January 1, 2019. This will target CFCs regarded as "low-taxed," meaning they are resident in a jurisdiction with a statutory tax rate of less than seven percent.

According the release, in 2019 the Netherlands plans to place the following states on the list of low-tax countries to which new CFC rules will apply: Anguilla, Bahamas, Bahrain, Bermuda, British Virgin Islands, Guernsey, the Isle of Man, Jersey, the Cayman Islands, Kuwait, Palau, Qatar, Saudi Arabia, the Turks and Caicos Islands, Vanuatu, and the United Arab Emirates. This list will be updated annually, the ministry said. The CFC rules will also apply to jurisdictions listed on the EU's tax blacklist.

Dividend, interest, and royalty payments to listed jurisdictions will be subject to tax at the headline corporate tax rate in force in the Netherlands (currently 25 percent, but due to be reduced to 22.25 percent from 2021).

In addition, the Government intends to review its tax treaty policy with a view to ensuring that treaties include the latest anti-tax avoidance standards, especially in the case of treaties with countries on the list of low-tax jurisdictions, and developed countries. Changes to 50 of the Netherlands' tax treaties will be effected through the BEPS Multilateral Instrument.

Once in place, the new policy will be used in all new tax treaty negotiations, the release said.

The consultation on the list of low-tax jurisdictions and the tax treaty review began on September 25 and is due to conclude on October 22, 2018.