As announced earlier this year (reported in our Tax Alert of 22 February), the Dutch government envisages to revise the Dutch ruling practice for international tax rulings, i.e. advance pricing agreements (APA's), advance tax rulings (ATR's) and all other tax rulings which need to be exchanged under EU Directive EU 2015/2376. This revision aims to further improve the quality of the ruling practice for companies with 'real activities' and to increase the robustness thereof. The measures announced by the State Secretary of Finance relate to the requirements that should be met to obtain an international tax ruling, transparency, and the issue process.
Requirements to obtain an international tax ruling
Under the revised Dutch ruling practice, an international tax ruling can only be obtained by companies that have an 'economic nexus' with the Netherlands. This new economic nexus concept replaces the current (minimum) Dutch substance requirements that need to be met to obtain a tax ruling. Economic nexus concerns economic operational activities that are actually performed for the account and risk of the company in the Netherlands. The activities should match the company's function within the group and there should be sufficient relevant personnel available in the Netherlands for these activities, which should be proportional to the total personnel of the group. The operational costs of the company should also be proportional to the activities that are carried out in the Netherlands. Further administrative guidance on the economic nexus concept, including examples thereof, will be provided through a policy decree (some examples of "no ruling situations" are already given in an annex to the Letter).
Furthermore, the Dutch tax authorities will examine the purpose of the specific structure for which an international tax ruling is requested more closely. Under current policy, an international tax ruling is not granted if the transaction for which the ruling is requested has the sole or the decisive motive to avoid Dutch taxes. After the revision, an international tax ruling will also be denied if the decisive motive of the structure is to avoid foreign taxes. In addition, international tax rulings will not be granted for transactions that involve companies that are tax resident in a state that is included on the EU list of non-cooperative jurisdictions or which is qualified as a low-tax jurisdiction (i.e. have a corporate tax rate lower than 9%).
Finally, all international tax rulings will have a standardized format ("determination agreements" which are binding on both the tax authorities and the tax payer) and a maximum term of five years (similar to current APAs/ATRs), unless the specific facts and circumstances allow for an exception, in which case this term can be extended to ten years.
To increase transparency, the Dutch tax authorities will publish an anonymised summary of each international tax ruling. In the Letter it is emphasized that information provided by taxpayers to the Dutch tax authorities is treated as confidential and that the summaries of international tax rulings cannot trace back to individual taxpayers.
The Dutch tax authorities will continue to publish an annual report on tax rulings, the scope of which will be extended to all international tax rulings (currently this report only addresses part of the international tax rulings, being APAs/ATRs). Besides administrative policy, the annual report will also discuss important questions that arose in the Dutch ruling practice together with the answers that the Dutch tax authorities provided in response thereto.
For the purpose of safeguarding the quality of and the uniformity within the Dutch ruling practice, the issue process of international tax rulings will be coordinated more centrally. Before being issued all international tax rulings applied for will also need to be signed-off (besides for example by a local tax inspector) by a newly formed team within the Dutch tax authorities, the Team International Tax Certainty.
As indicated above, the State Secretary of Finance has the ambition to implement the revised Dutch ruling practice for international tax rulings on 1 July 2019. The Letter seems to indicate that the new ruling policy has no retroactive effect, meaning that international tax rulings which are already in place, should not be affected by the revised Dutch ruling policy.