The Dutch Ministry of Finance released two policy letters to set out priorities in tax matters for until 2021. In the letters, the government announced a package of tax measures to tackle tax avoidance and evasion consisting of the following two pillars.
Protecting the Tax Base
To protect the Dutch tax base, the government will start implementing the first EU Anti-Tax Avoidance Directive (ATAD1) in 2019 and may go beyond the minimum standard set in the directive. Potential base erosion will be dealt with urgent reparatory measures, operative with retrospective effect. The proposal is summarised below:
- The government will submit a bill implementing ATAD1 in the first half of 2018. As the Netherlands already levies exit taxes and has a general anti-abuse rule in the form of the doctrine of fraus legis, the government will introduce the general interest limitation rule (earnings stripping rule) and a controlled foreign company regime (CFC rule), with keeping an eye on urgent reparatory measures or the fiscal unity regime with retrospective effect.
- The government will incorporate the second EU Anti-Tax Avoidance Directive(ATAD2) into Dutch law in a timely manner and apply it from 1 January 2020, tackling the hybrid mismatch issue (double deductions or deduction without inclusion) from a domestic perspective. Implementation of the ATAD2 will entail the inclusion of rules in Dutch law to neutralise the tax advantages arising from hybrid mismatch arrangements. The Netherlands also combats hybrid mismatches by means of its treaty policy by including a provision in all tax treaties that ensures that treaty benefits are only granted if a hybrid entity's income is taxed in the hands of the participants in that entity.
- The government will also make the treaty network less susceptible to abuse by means of the Multilateral Instrument (MLI), keeping the internationally oriented Dutch tax system from being used as a conduit to tax havens. In this case, new withholding taxes will be levied on entities established in the Netherlands that pay dividends, interest or royalties to a group entity if that group entity is established in a country with a low statutory rate or a country on the EU list of non-cooperative countries. Substance requirements and the principal purpose test (PPT) will be employed when granting tax benefits.
- The government will revise the transfer pricing rules based on the OECD guideline, and rethink the arm’s length principle in a digitalised economy context.
Promoting Transparency and Integrity
The government is aware that enhanced transparency significantly contributes to combating tax avoidance and tax evasion. In the proposal, the government puts efforts in:
- Transparency between taxpayers and the Dutch Tax and Customs Administration: to increase transparency and integrity, the statutory right of non-disclosure enjoyed by lawyers and civil law notaries in tax matters will be clarified and fines for culpable negligence will be made public if they participate in a finable offence. These financial service providers will therefore be more accountable for the arrangements on which they advise;
- Transparency between tax authorities by means of information exchange;
- Measures to promote ethical conduct among tax intermediaries and in financial markets: to strengthen the integrity of financial markets, the government is drafting legislation to establish a register for ultimate beneficial owners. Existing laws on trusts and company service providers will be tightened up.
Sources: Dutch Government - Agenda, Dutch Government - Policy Letter