Loyens & Loeff Seminar Keeping up with BEPS and other Dutch developments - 12 FEBRUARY 2019
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12 FEBRUARY 2019
Loyens & Loeff Seminar
Keeping up with BEPS
and other Dutch developments
Keeping up with BEPS and other Dutch Developments 2
Loyens & Loeff Seminar
Keeping up with BEPS and other
Dutch developments
During the seminar ‘Keeping up with BEPS and other Dutch developments’, various tax
lawyers of Loyens & Loeff updated the audience on the latest international tax developments.
When the OECD started its BEPS initiative and published its report with 15 action points in
July 2013, who would have expected that almost 6 years later we would still have so many
BEPS developments and OECD tax documents on the agenda?
Opening The day after the seminar, i.e. on 13 February 2019, the
Margriet Lukkien OECD published its Consultation Document on Addressing
Tax Challenges of the Digitalisation of the Economy.
Three important developments to be The first pillar of this document addresses the broader
vigilant on. challenges of the digitalised economy by focusing on the
allocation of taxing rights. The OECD proposals entail
Margriet touched upon three important developments that businesses would allocate more profits to markets
to watch out for: the Multilateral Instrument (MLI), the with whom they interact, regardless of the extent of their
announced change to the Dutch tax ruling policy as of physical presence there. The second pillar deals with
1 July 2019 and the OECD’s initiatives on Addressing the remaining BEPS issues and it boils down to the question
Tax Challenges of the Digitalisation of the Economy. whether we need a global minimum tax. Most policy
measures presented in this OECD Consultation Document
As a brief recap, the MLI was developed by the OECD with would have a broad impact, affecting companies beyond
the idea to include BEPS measures in bilateral tax treaties the taxation of digital services (see our Tax Flash).
in an efficient manner. The MLI was approved in the Lower
House of the Dutch Parliament on the day of the seminar (i.e. How to reduce
12 February 2019, see our Tax Flash). On 14 February 2019, CFC taxation risks
the Luxembourg Parliament approved the MLI, meaning – in Sander Tijl
short - that the MLI will have effect as of 1 January 2020 (see
our Tax Flash). Hence it is important to have a clear picture Whether the CFC rules have a real bite
of what the MLI impact is on a structure and what kind of depends very much on the facts and
restructuring will be needed this year. circumstances.
For concluding an international ruling (Ruling), the Since 1 January 2019, Controlled Foreign Corporation
Netherlands wants to raise the bar for taxpayers as of 1 July (CFC) rules against the use of passive tax haven
2019. In short, it means that sufficient economic nexus in companies have applied in every single EU Member State.
the Netherlands is needed for a Ruling. Further, Rulings will Sander explained how MNEs can stay in control if they
not be concluded if the main motive of the taxpayer is to still have these kinds of entities in their structure, if only
save taxes and/or if one of the entities involved is in an EU because dissolving these entities takes time. He gave key
blacklisted jurisdiction or a low-taxed jurisdiction. How this points to remember on the various elements within the
is all exactly to be determined is still unclear. Taxpayers who CFC rules. To name but a few, the control test does not
still want to conclude a Ruling before 1 July 2019 under require actual control, the jurisdiction test may change on
the existing – less strict - Ruling policy need to file a Ruling a yearly basis, and the substance escape may apply more
request with the Dutch tax authorities shortly. often than one may expect.3
He also addressed the problem of double taxation. The A good reason is needed, the reason must be genuine and
CFC rules offer a credit for income tax paid by the CFC in the functions must match. A large number of substance
its local jurisdiction. However, there is neither relief for the rules require economic activity. In many cases a pure
concurrent application of CFC rules in multiple EU Member holding company is seen as artificial due to the absence of
States, nor relief for concurrent application of the Dutch any economic activity. According to CJEU case law1, the
CFC rules within the Netherlands. As a result, if a CFC is absence of economic activity in a pure holding company is
not owned by the top-tier EU group company, double, not artificial. The holding of shares is a genuine reason and
triple or even multiple taxation may be the result. no (additional) economic activity is needed. Although tax
is a good reason, the question is whether benefiting from
How allocation of functions foreign tax advantages or mismatches are good reasons.
makes your organisation
acceptable from a tax On 26 February 2019 the CJEU will publish its decision.
perspective Dennis expects that the CJEU will follow the Advocate-
Dennis Weber General’s argument that the level of substance needed
depends on the function of the company.
It is recommended that MNEs create an EU
defense file to lay down in writing the reason The future of the CV/BV as a
for their structure. Dutch reverse hybrid structure
Michiel van Kempen
The question is whether substance is the answer to all
BEPS problems. The main (principal) purposes test included MNEs have to see which option suits them
in the EU Parent-Subsidiary Directive, the MLI, the OECD best and need to reorganise this year.
Model Tax Treaty and the EU Anti-Tax Avoidance Directive
is very unclear and results in uncertainty. In response, The tax law changes in the US (i.e., the Tax Cuts and Jobs
governments try to create legal certainty by introducing safe Act) and the Netherlands have a major impact on CV/
harbours in the form of substance rules. The Netherlands BV structures as Dutch reverse hybrid structures for US
did that for the dividend withholding tax exemption and the MNEs. These changes in the US include:
CFC rules. The same substance rules apply. - the reduction in the corporate income tax rate from
35% to 21%;
According to the Court of Justice of the EU (CJEU) these - the mandatory (deemed) repatriation of foreign
safe harbour rules are not allowed as each case must be earnings at 15.5% / 8%;
looked at on an individual basis. Apart from substance, - the taxation of low-taxed foreign income (i.e., Global
other aspects such as structures and strategies of the Intangible Low-Taxed Income (GILTI)) on a current basis
group are also relevant. The question is: does an MNE at an effective rate of approximately 10.5%;
have a good reason for a certain structure? - an incentive created for US MNEs to export from the
US, providing for an effective tax rate of approximately
The Dutch government takes that approach. In the ruling 13.125% for certain foreign-derived income (known as
practice, other aspects are also taken into account on a the Foreign Derived Intangibles Income (FDII) regime).
case-by-case basis. An unanswered question is whether,
in case of a good reason, economic activity is needed as Under the law to be implemented in the Netherlands on the
well? In the case C-115/16 pending before the CJEU, a basis of the EU Anti-Tax Avoidance Directive 2 (ATAD 2),
sub-holding having one loan of over EUR 150 million has payments made by a BV to the CV in a CV/BV structure are
minimal substance costs and EUR 174,000 of legal costs. no longer tax deductible at the level of BV as of 1 January
The sub-holding was created following the introduction 2020 as these payments are not taxed at the level of the CV.
of withholding tax in Denmark in order to achieve the The Dutch Ministry of Finance will likely consider the GILTI
same situation as before, namely no withholding tax taxation as insufficient in order to allow such a deduction.
burden. According to the Advocate-General this is a good In addition, dividend withholding tax will likely be due in the
reason and not artificial. Although the facts may appear Netherlands upon distributions to be made by the BV to
unbalanced, for such a large loan a company needs good the CV as of 1 January 2020. If 50% or more of the CV’s
lawyers and good contracts rather than many people participants reside in a country that does not treat the CV as
managing the loan. transparent in the same way as the Netherlands does, the
1 Deister Holding and Juhler Holding (joined cases C-504/16 and C-613/16).Keeping up with BEPS and other Dutch Developments 4
Netherlands is required to tax the CV as of 1 January 2022 In Loyens & Loeff’s experience in discussions with the
as a resident taxpayer on a pro rata basis. Dutch tax authorities on onshoring transactions, often
price adjustment clauses are agreed upon based on
According to Michiel, US MNEs have three options in light which the IP valuation will be adjusted if after a defined
of the various law changes: (i) repatriate their non-US IP number of years the actual cash flows from the IP
to the US, (ii) continue having it offshore, or (iii) onshoring substantially deviate from the cash flows taken into
it elsewhere, such as to Europe. The benefit of bringing account for determining the valuation based on the DCF
IP to the US is that MNEs can often use the FDII regime. method. For the Dutch tax authorities to consider the
Typically, MNEs without any DEMPE functions outside onshoring transaction at arm’s length, it is required that
the US would consider doing this. Nevertheless, a limited the purchasing entity has the functionality to contribute
number of US MNEs have transferred their IP to the US and add value to the IP. More weight is given to the
mostly as there is some doubt whether the US tax system development and enhancement of the IP than to the
will remain as it is. Another issue to consider might be maintenance, protection and exploitation of the IP. From
that a number of countries are contemplating denying the the pending EU state aid case dealing with onshoring
deduction of payments made to a US company benefiting IP (i.e. Ikea) follows that the value of the IP to take into
from the FDII regime as they do not consider this FDII account upon onshoring may be reduced if an MNE
regime as compliant with the modified nexus approach. already has certain functions and activities in the country to
which it is onshoring.
Tax-efficient IP restructuring
alternatives EU Mandatory Disclosure
Lucia Sahin Directive - how to be in control
of your advisers
Going forward, for a tax-efficient structure Mark van Casteren and Bert van der Poel
of their IP, MNEs will have to aim at no more
than single taxation of their IP income. It is recommendable for MNEs to stay in control as much
as possible of the information to be disclosed.
Going forward, DEMPE functions will not suffice for
sustaining an efficient IP structure. Even if an MNE has Today’s new reality is that tax advisers and other
DEMPE functions in a tax haven, it will encounter tax issues intermediaries are legally obliged to disclose to the tax
in the coming years due to among others (i) the non- authorities of all EU Member States detailed information about
deduction of royalty payments made to a tax haven reverse advice they give to their clients. The goal of the Mandatory
hybrid entity as of 1 January 2020 pursuant to ATAD 2, Disclosure Directive is twofold. Firstly, to create a level playing
and/or (ii) the levy of withholding taxes on royalty payments field to make sure that the tax authorities within the EU are
made by Dutch licensees as of 1 January 2021 when the aware of what tax advisers are advising their clients, even if
conditional withholding tax is expected to enter into force. they do not implement it. Secondly, to identify who promotes
potentially aggressive tax structures and who uses them.
A sustainable option is to onshore IP to a high-taxed tax
country, such as the Netherlands, Luxembourg, Belgium or Although reportable transactions, being potentially
Ireland. Outside the EU, Switzerland, and in the future also aggressive tax planning arrangements, need to be
the UK, are options. In selecting a country to onshore the reported for the first time by 31 August 2020 at the latest,
IP to, the following elements are relevant: advisers and taxpayers already have to deal with it now, as
- the corporate income tax rate and other tax rates; it concerns all reportable transactions where the first step
- the level of economic activity required and the ease for of implementation has occurred since 25 June 2018.
the MNE of establishing the economic activity in said
jurisdiction; Taxpayers themselves have a reporting obligation in the
- a step-up in value for the IP; following limited situations:
- rules for IP amortisation; - if they develop the reportable transaction entirely
- the application of an IP box regime; in-house; or
- interest deductibility and withholding tax credits; - if the intermediaries involved do not have a link to an
- exit taxation on any accrual in the IP value; EU Member state; or
- the possibility of a tax ruling. - if all intermediaries involved act under a legal privilege.5
The Dutch implementation proposal implies that the legal - the taxpayer must include a transitory asset in its
privilege of lawyers and notaries is accepted. Instead tax balance sheet until it is established whether the
they need to inform the other intermediaries involved transaction actually takes place or not;
that the reporting obligation shifts to them. If no other - the transitory asset will be written off and is non-
intermediaries are involved, they have to inform their client deductible if the transaction will take place and
that the reporting obligation shifts to them as the taxpayer. deductible if it will not take place (unless there is still an
intention to sell).
Taxpayers may face questions about what is reported
and tax authorities may start tax audits as a result of the Although a more optimistic approach has been identified
information they receive. In order to be aware of what in literature, according to the more conservative approach
information will be disclosed, it is recommended that that seems to prevail there is no longer room for the
taxpayers agree with their intermediaries that they be standard practice; costs with a direct causal link are no
informed about: longer deductible regardless of the moment when they
- whether they are going to report; were incurred.
- what they are going to report;
- when they are going to report; Louis recommended MNEs to:
- who is going to report, if more than one intermediary is - clearly track, label and monitor the costs for future
involved. transactions;
- re-examine any positions taken in previous tax returns
In order to stay in control as much as possible of the and assess possible effects; the tax authorities are
information that is going to be disclosed, Mark and likely to deviate from the positions taken in the tax
Bert recommended that taxpayers (i) track and monitor returns;
potentially reportable arrangements, together with - check whether a settlement agreement, tax ruling or
their advisers, and (ii) check and discuss the potential other kind of confirmation applies; this will make it more
consequences of this new reality with their advisers at an difficult for the tax authorities to deviate from positions
early stage, as from July 2020 the term to report is short. taken;
- investigate, based on the relevant facts and
M&A transactions – circumstances, whether the argument that the principle
hot tax topics of legitimate expectation or the principle of equality
Louis Lutz applies can be used.
It is recommended that MNEs clearly
track, label and monitor the costs for future
transactions.
The deduction of transactions costs often results in difficult
and lengthy discussions with the tax authorities. The
Supreme Court ruling of 7 December 2018 is likely to give
rise to further discussions as it seems to deviate from what
was standard practice. According to the Supreme Court:
- costs are non-deductible only if there is a direct causal
link between the costs and the acquisition or disposal
of a specific participation;
- costs include both external and internal costs;
Although this publication has been compiled with great care, Loyens & Loeff N.V. and all other entities, partnerships, persons and practices
trading under the name ‘Loyens & Loeff’, cannot accept any liability for the consequences of making use of this publication without their
cooperation. The information provided is intended as general information and cannot be regarded as advice.6
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