Executive summary

On 25 March 2021, the Dutch Government published a legislative proposal introducing a withholding tax on dividend payments to low-taxed jurisdictions, effective as of 1 January 2024. The withholding tax will also apply in the case of abusive situations and is an extension to the already enacted withholding tax on interest and royalty payments to low-taxed jurisdictions or abusive situations. The withholding tax rate is equal to the headline corporate income tax rate, which is currently 25%. This withholding tax will exist together with the ”normal” dividend withholding tax of 15%, although an anti-cumulation rule will apply, effectively limiting the total tax on dividends to low-taxed jurisdictions, hybrid entities or in abuse situations to 25%.

The implications of the proposed legislation must be carefully assessed on a case-by-case basis.

Detailed discussion

Withholding tax on dividends

If enacted, a withholding tax (WHT) of 25% will be introduced as of 1 January 2024 on dividends (deemed) paid by a Dutch corporate taxpayer to a related entity resident if:

That entity is resident in a low-taxed jurisdiction, which is:

A jurisdiction with a statutory tax rate lower than 9%

A jurisdiction that is included on the European Union (EU) list of non-cooperative jurisdictions

Another jurisdiction if the entity allocates the dividends to a permanent establishment in a jurisdiction with a statutory tax rate lower than 9% or in a jurisdiction that is included on the EU list of non-cooperative jurisdictions

That entity is a hybrid entity, or

The entity is part of an abusive structure (in short: a structure with the aim of avoiding the withholding tax and which is artificial)

Low-tax jurisdiction or EU list of non-cooperative jurisdictions

Payments to affiliated entities resident in a jurisdiction with a statutory tax rate lower than 9% (a low-taxed jurisdiction) or a jurisdiction on the EU list of non-cooperative jurisdictions (the EU List) are in scope of the conditional WHT. The Dutch Government publishes a list at the end of each year with jurisdictions that qualify as low-taxed jurisdictions or are included on the EU List at that time. Only jurisdictions that are included on that list for the preceding calendar year are in scope of the conditional WHT.¹

Hybrid entities

Hybrid entities are entities that are considered transparent for one jurisdiction and non-transparent for another jurisdiction. An example is the situation in which a Dutch company distributes a dividend to an entity that is transparent in the jurisdiction under which laws it is formed, but non-transparent according to the jurisdiction where the participant in the entity is resident.

Abusive situations

The WHT may also apply on dividend payments in certain abusive situations, including (deemed) payments to intermediate holding companies. For example, in the case of an intermediate holding company located in a non-low taxed jurisdiction that is considered a conduit (e.g., that lacks economic substance) between the Dutch company distributing the dividend and an (ultimate) recipient in a low-taxed jurisdiction. Having relevant substance in such a conduit company provides a presumption of proof that the arrangement is not abusive.

Affiliated entities

The WHT is due on payments to affiliated entities. Entities will be considered affiliated in the following cases:

One entity directly or indirectly holds a qualifying interest in the other.

A third entity directly or indirectly holds a qualifying interest in both entities.

One entity, together with a cooperating group of shareholders, holds a qualifying interest in the other.

A cooperating group of shareholders holds a qualifying interest in both entities.

An interest is a ”qualifying interest” when a holder of such interest can exercise control over decisions of the entity.

This should be determined based on the relevant facts and circumstances. An interest representing 50% or more of the statutory voting rights will normally be a qualifying interest, but also lower interest percentages can result in a qualifying interest being present. Whether a group of shareholders qualify as such cooperating group of shareholders depends on the facts and circumstances, such as coordinated group decisions.

Definition of dividends

The WHT is due on (deemed) distributions out of profit, profit reserves or equivalent payments. This is generally in line with the Dutch Dividend Withholding Tax 1965.

The WHT obligation is due when a dividend is declared and payable.

Tax rate

The rate of the WHT equals the headline corporate income tax rate, currently a rate of 25%. A credit is given for Dutch dividend withholding tax (anti-cumulation).

Timing and next steps

The proposal is currently under review by the Dutch Parliament and is subject to the regular parliamentary proceedings. No further detail has been announced yet on the timeline and when this proposal will be discussed by Dutch Parliament.

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For additional information with respect to this Alert, please contact the following:

Ernst & Young Belastingadviseurs LLP, International Tax and Transaction Services, Amsterdam

Danny Oosterhoff | danny.oosterhoff@nl.ey.com

Dirk Stalenhoef | dirk.stalenhoef@nl.ey.com

Ernst & Young Belastingadviseurs LLP, International Tax and Transaction Services, Rotterdam

Frank Schoon | frank.schoon@nl.ey.com

Robert Kool | robert.kool@nl.ey.com

Tim Clappers | tim.clappers@nl.ey.com

Reinout Kok | reinout.kok@nl.ey.com

Ernst & Young LLP (United States), Netherlands Tax Desk, New York

Dirk-Jan (DJ) Sloof | dirkjan.sloof@ey.com

Max ’t Hart | max.t.hart1@ey.com

Ernst & Young LLP (United States), Netherlands Tax Desk, Chicago

Sebastiaan Boers | sebastiaan.boers1@ey.com

Ernst & Young LLP (United States), Netherlands Tax Desk, San Jose/San Francisco

Job Grondhout | job.grondhout@ey.com

Laura Katsma | laura.katsma2@ey.com

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Endnotes

1. As of 1 January 2021, the following jurisdictions are included on the list: American Samoa, Anguilla, Bahamas, Bahrain, Barbados, Bermuda, British Virgin Islands, Cayman Islands, Dominica, Fiji, Guam, Guernsey, Isle of Man, Jersey, Oman, Palau, Panama, Samoa, Seychelles, Trinidad and Tobago, Turkmenistan, Turks and Caicos Islands, United Arab Emirates, Vanuatu, and the US Virgin Islands.