For many years, the Netherlands has been considered the gateway to Europe for non-European companies and investors. The certainty provided by advance tax rulings (ATRs) and advance pricing agreements (APAs), the country's extensive participation exemption regime, the excellent Dutch network of tax treaties and bilateral investment treaties, flexible corporate law and the country's business-friendly infrastructure are all key elements in this respect.


i Corporate

Dutch (holding) companies are generally organised as limited liability companies or as cooperatives.

Limited liability companies

Limited liability companies come in two forms: private limited liability companies (BV) and public limited liability companies (NV).

Both types of companies have legal personality and capital that is divided into shares. As the NV and BV both have limited liability, their shareholders are not liable for the company's debts. While NVs are typically used for companies going public (i.e., listed on a stock exchange), BVs are generally used for smaller businesses or as a holding or finance vehicle.

NVs and BVs in principle pay Dutch corporate income tax (CIT) on their worldwide profits, with a branch exemption and participation exemption regime to eliminate international double taxation. Both types of companies are considered to be Dutch tax residents by virtue of being incorporated under Dutch law. Dividend distributions by NVs and BVs are subject to Dutch dividend withholding tax, with reductions and exemptions pursuant to domestic law and the application of a tax treaty.


The Dutch cooperative is a special form of association. By and large, the general Dutch CIT rules governing associations also apply to cooperatives. However, in addition to these general rules, certain specific rules apply to cooperatives only. Like all associations under Dutch law, a cooperative must have a board of directors and members and, if the articles of association allow, a supervisory board. Moreover, the cooperative regime is quite flexible: no minimum capital requirements apply, only two members (at least) are required and dividends may be distributed freely.

In accordance with Dutch law, a cooperative's objective (as formalised in its articles of association) must state that it provides for specific material needs of its members pursuant to agreements that are not insurance contracts and that have been concluded with those members as part of the cooperative's business or causes that benefit the members.

Cooperatives have historically (up to 31 December 2017) been an attractive legal form for international holding companies, in that, as a rule, the members were not subject to Dutch dividend withholding tax (subject to specific anti-abuse rules). This general exemption, however, has lapsed as of 1 January 2018 for cooperatives of which the main (≥70 per cent) activities consist of holding participations or intercompany financing. Holding and financing cooperatives are now, in principle, subject to Dutch dividend withholding tax.

ii Non-corporate

Pursuant to Dutch law, partnerships are formed by means of a partnership agreement that governs the long-term cooperation between two or more partners. A partnership is not a separate legal entity; however, Dutch partnerships can sue and be sued, and can enter into contracts in their own name.

Dutch partnerships come in the form of a general partnership (VOF), a limited partnership (CV) or a professional partnership. The most important differences between these forms are expressed in how they interact with third parties, including representation, liability and the right of recourse. Whereas general and limited partnerships are considered to be subcategories of professional partnerships, the statutory provisions for a professional partnership essentially apply by analogy to general and limited partnerships. An important consideration is that the liability of general partners in a VOF and general partners in a CV is unlimited, while the liability of limited partners in a CV is limited to the amount of their respective capital contributions.

Dutch domestic tax rules distinguish between 'closed' and 'open' CVs. An open CV is regarded as non-transparent (opaque) for the limited partner interest, and is, therefore, (partly) a taxpayer for Dutch tax purposes; conversely, closed partnerships are transparent. A look-through approach applies to these closed CVs, meaning that only the partners in the CV may be subject to tax. The 'consent requirement' is a crucial factor in determining whether a CV is regarded as an open or closed partnership. A CV qualifies as open if limited partners can join and exit the partnership – except by bequest or inheritance – without unanimous consent from all other partners (i.e., both general and limited partners).

Upon implementation of the EU Anti-Tax Avoidance Directive II (ATAD II; with anticipated effective date being 1 January 2020), deductible payments made to a closed CV that are not taxed in the hands of the closed CV or the partners due to a difference in the qualification of the partnership (transparent versus opaque; hybrid mismatch), would no longer be deductible if the payor is a Dutch (or other EU) resident company. With the anticipated effective date being 1 January 2022, ATAD II prescribes that closed CVs should become subject to tax if the income of the closed CV is not taxed in the hands of its partners as a result of a hybrid mismatch.


i Tax on profits


Dutch CIT is levied on Dutch and non-Dutch tax residents. Dutch tax residents are in principle subject to Dutch CIT on their worldwide income. Non-residents are subject to CIT only insofar as they enjoy Dutch-source income, which falls into two categories:

  1. taxable profits derived from a business that is conducted through a permanent establishment (PE) or a permanent representative in the Netherlands (see Section IV.ii); or
  2. taxable income derived from a substantial interest in a company that is a resident of the Netherlands, provided that:
    • the main purpose (or one of the main purposes) for holding the interest is to avoid Dutch personal income tax in the hands of another person (subjective test); and
    • an arrangement (or a series of arrangements) is in place that is not genuine (objective test).

For purposes of condition (b), an arrangement or a series of arrangements is considered not genuine if and to the extent it is not based on valid commercial reasons that reflect the economic reality.

Whether an arrangement has been put into place for valid commercial reasons may depend on the substance at shareholder level. Valid commercial reasons may be present if, inter alia, the shareholder conducts a material business enterprise and the shareholding is part of the business enterprise's assets; the shareholder is a top holding company that performs material management, policy and financial functions for the group; or the shareholder functions as an intermediate holding company within the group structure. Intermediate holding companies are subject to an additional requirement pursuant to which the holding company must satisfy the Dutch minimum substance requirements. In addition to the minimum substance requirements, the Netherlands has introduced a wage sum criterion (in general, a wage sum of €100,000) and an office space criterion (office space for at least 24 months), that would apply to intermediate holding companies.

Determination of taxable profit

Dutch CIT is levied on a taxpayer's taxable profit, being the net income earned and capital gains less deductible losses, as determined annually in accordance with the principles of sound business practice. Under this general principle, which has been widely developed under Dutch case law, profits and losses are attributed to the years based on principles of realisation, matching, reality, prudence and simplicity. In principle, all business expenses may be deducted from the taxable profit, including interest on loans (subject to interest deduction limitation rules), and annual amortisation and depreciation on assets used for the taxpayer's business.


In general, tax losses can be carried back to be offset against the previous year's taxable profits, and can be carried forward for nine years (six years for losses made in fiscal years starting on or after 1 January 2019). Loss carry-backs and carry-forwards are applied in the order in which the losses arose (meaning that a loss will first be offset against the previous year's profits, and then against future profits).

However, special rules for loss relief may apply to holding companies and direct (or indirect) financing companies (for holding and financing losses incurred prior to 2019) as to the trade in 'loss-making companies'. In the latter scenario, a company's losses may not be offset against future profits if 30 per cent or more of the ultimate interest in that company changes among the ultimate beneficial owners or is transferred to a new shareholder. This rule offers a number of exceptions, however (the going-concern exception, for example).

In view of the Dutch participation exemption regime (see Section V.i), taxpayers may not deduct losses on the disposal of a qualifying participation from their taxable profit. In addition, a write-off of the cost price of a participation is not deductible. However, liquidation losses, whether foreign or domestic, may be deducted from the taxable profits, provided that certain requirements are met. The liquidation loss amount is determined on the basis of the difference between the liquidation proceeds and the cost price of the participation.


The standard CIT rate is 25 per cent. The first €200,000 of annual taxable profit is taxed at a step-up rate of 20 per cent. To further bolster the investment climate, legislation has been adopted to lower the CIT rates, including a top bracket CIT rate reduction to 20.5 per cent in 2021 (2018: 25 per cent, 2019: 25 per cent, 2020: 22.55 per cent) and a lower bracket CIT rate reduction to 15 per cent in 2021 (2018: 20 per cent, 2019: 19 per cent, 2020: 16.5 per cent).


Taxpayers must file annual CIT returns with the Dutch tax authorities within five months of the end of their financial year. It is possible to apply for an extension of this filing deadline.

Dutch taxpayers are allowed to file their returns in a functional currency (i.e., a foreign currency other than the euro) if their annual reports are drawn up in the same foreign currency. As such, a Dutch taxpayer can ensure that fluctuations between the euro and the functional currency do not lead to taxable profits (e.g., foreign exchange results on outstanding debt or receivables).

Tax grouping

The Dutch consolidation regime (fiscal unity) offers the possibility for taxpayers to opt for treatment as a single taxable entity for Dutch CIT purposes. A Dutch resident parent company and its Dutch resident subsidiaries may form a fiscal unity if certain requirements are satisfied, the most important being that the parent company, directly or indirectly through other fiscal unity members, must hold at least 95 per cent of the legal and economic title to the shares issued by the subsidiaries. As a result, the assets and liabilities of the entities included in the fiscal unity are consolidated, meaning that intercompany transactions are eliminated and that the business income of the fiscal unity members is balanced for CIT calculation purposes. Although each member of the fiscal unity remains jointly and individually liable for the CIT due by the entire fiscal unity, the CIT assessments are only imposed on the parent company. A fiscal unity (for Dutch CIT purposes) is optional (i.e., it is not formed by operation of law), and therefore requires a prior request to that effect.

Following the judgment of the European Court of Justice (ECJ) in SCA Group Holding, the Dutch court of appeal ruled on 16 December 2014 that by disallowing a fiscal unity between a Dutch parent company and an indirect Dutch subsidiary held through an EU or EEA intermediate subsidiary, or a fiscal unity between two Dutch 'sister' companies held through a joint EU or EEA parent company, the Dutch fiscal unity regime conflicts with the European principle of freedom of establishment. In accordance with this decision, the Dutch Ministry of Finance issued a decree providing for an extra statutory consent for such European cross-border fiscal unities. Moreover, a legislative proposal codifying these changes to the fiscal unity regime into the Dutch Corporate Income Tax Act (CITA) entered into force as of 1 January 2017.

Following the judgment of the ECJ in X BV of 25 October 2017, in which the ECJ declared the Dutch fiscal unity regime (partially) breaches the freedom of establishment, the Dutch government announced emergency reparatory legislation to bring the fiscal unity regime in line with the EU freedom of establishment. The emergency reparatory legislation proposal will have retroactive effect up to 1 January 2018. The legislation would decrease the scope of the consolidation of the Dutch fiscal unity regime for a number of Dutch CIT rules that affect non-Dutch resident companies (which could not be included in the Dutch fiscal unity due to not being a Dutch tax resident), where these rules do not affect Dutch resident companies that are a part of a Dutch fiscal unity. The legislative proposal is currently still pending before Dutch parliament.

ii Other relevant taxes

Value added tax (VAT)

VAT is charged on supplies of goods and services in the Netherlands and is based on the various EU VAT Directives. The standard VAT rate is 21 per cent. A reduced rate of 6 per cent (9 per cent as of 2019) is charged on designated supplies, while a zero per cent rate applies to supplies related to international trade. In addition, various VAT exemptions exist in the Netherlands, pursuant to which no VAT is charged (although it is important to bear in mind that in some cases the corresponding input VAT cannot be deducted).

The Dutch VAT Act provides for a deferment system for VAT, under which taxpayers must declare import VAT in their periodic tax returns but simultaneously deduct it, meaning that on balance no VAT is actually paid.

Excise and import duties

Excise duties, being a consumption tax, are levied on alcoholic products, tobacco and mineral oil products. Import (or customs) duties are levied on various products that are imported into the Netherlands from outside the EU. The Netherlands does not impose export duties.

Real estate transfer tax (RETT)

The acquisition of the legal or economic ownership of real estate (or rights relating thereto) located in the Netherlands is subject to real estate transfer tax at a rate of 6 per cent (2 per cent for residential properties). Various exemptions may apply in situations involving mergers or reorganisations.

Moreover, the acquisition of shares in a real estate company, being a company where real estate assets make up more than 50 per cent of the assets, of which at least 30 per cent consists of real estate located in the Netherlands, is also subject to Dutch RETT.

Wage tax and social security contributions

In principle, individuals in employment are subject to wage tax, which the employer withholds from their wages and remits to the tax authorities. This applies not only to wage tax on salary payments, but also to social security contributions. Dutch wage tax is considered to be an advance levy, meaning that individuals may credit it against their Dutch personal income tax due.

Highly skilled expatriates may claim a special tax facility, known as the '30 per cent ruling'. The 30 per cent ruling is a tax-free reimbursement of 30 per cent of an employee's (gross) salary, which may be applied if the employee has been recruited or assigned from abroad and has specific expertise that is difficult to find in the Dutch labour market.


The Netherlands does not levy any stamp or capital duties.


i Corporate residence

Pursuant to Dutch tax law, the place of residence of a corporate entity is determined on the basis of all relevant facts and circumstances, in particular taking into account the place of effective management.

However, the CITA provides an important exception to this principle by applying the 'incorporation fiction'. Pursuant to this fiction, entities such as NVs and BVs are deemed to be tax residents of the Netherlands by virtue of being incorporated under Dutch law. Accordingly, an entity incorporated under Dutch law is in principle fully liable to Dutch CIT regardless of its taxable place of residency, except limited by a bilateral tax treaty.

ii Branch or permanent establishment

Taxable profits from a business that is conducted through a PE or a permanent representative (referred to as a 'Dutch business') in the Netherlands are in principle subject to Dutch CIT.

In addition to the generally accepted Dutch PEs (the Netherlands typically follows the PE definition under the OECD Model Convention), the CITA explicitly states that a Dutch business is deemed to include:

  1. income and gains derived from real estate located in the Netherlands, including direct and indirect rights in Dutch real estate and rights to explore and commercially operate Dutch natural resources;
  2. profit-sharing rights in, or entitlements to, the net value of a business that is effectively managed in the Netherlands, except insofar as those rights or entitlements are not derived from securities;
  3. receivables on companies that are residents of the Netherlands, provided that the lender holds a substantial interest in the company concerned; and
  4. activities performed by a member of the management or supervisory board of an entity that is a resident of the Netherlands, even if the authority is restricted to those parts of the business that are located outside the Netherlands.

In determining the profits attributable to a PE, the Netherlands follows the authorised OECD approach, which has been largely incorporated into the Dutch PE profit allocation decree of 2011.


i Holding company regimes

Participation exemption regime

Under the Dutch participation exemption regime, all benefits (i.e., dividends and capital gains) derived by a Dutch company from a qualifying participation in another entity are exempt from Dutch CIT.

The Dutch participation exemption applies if the following conditions are both met: the Dutch company holds 5 per cent or more of the nominal paid-up share capital of a company whose capital is divided into shares (the '5 per cent ownership condition'); and the entity in which the Dutch company participates is not held as a portfolio investment (the 'motive test' or 'non-portfolio investment condition').

This means that for purposes of the Dutch participation exemption regime the taxpayer must own a 5 per cent (or greater) interest in a subsidiary whose capital is divided into shares.

The non-portfolio investment condition implies that the participation exemption does not extend to subsidiaries that are held as portfolio investments (the 'motive test'). A subsidiary is considered to be held as a portfolio investment if the Dutch resident company's only object is to obtain returns that may be expected from normal active asset management. If the taxpayer has a mixed motive, the predominant motive is decisive. According to legislative history, a subsidiary that is engaged in a business and that is owned by an intermediate Dutch holding company linking the subsidiary's activities and those of the larger group is not considered to be a portfolio investment. However, the motive test is deemed not to be met if more than 50 per cent of the subsidiary's consolidated assets consist of a shareholding (or shareholdings) of less than 5 per cent; or the subsidiary's predominant function – together with the functions of its lower-tier subsidiaries – is to act as a passive group finance, licensing or leasing company.

On 1 January 2016, the Netherlands introduced an anti-hybrid rule implementing the amendments to the PSD. Under this new rule, income that would normally fall within the scope of the Dutch participation exemption regime is no longer exempt if and insofar as the payment is legally or effectively tax-deductible at the level of the subsidiary. Although the anti-hybrid rule was prompted by changes to the PSD, it extends to distributions or payments by non-EU subsidiaries. Further changes to the Dutch participation exemption regime are anticipated as of 1 January 2019 to bring the regime in line with ATAD, as adopted in the course of 2016 (ATAD I) and further expanded in May 2017 (ATAD II).

ii IP regimes

The Netherlands offers a favourable tax regime for profits from qualifying IP developed by a Dutch taxpayer. Under this 'innovation box' regime, profits from the research and development (R&D) of qualifying assets are taxed at a lower CIT rate of 7 per cent (instead of 25 per cent) to the extent that the R&D profits exceed a threshold equal to the sum of the costs incurred to develop the IP.

As of 1 January 2017, the Dutch innovation box regime became aligned with the OECD's base erosion and profit shifting (BEPS) Action 5 (countering harmful tax practices more effectively, taking into account transparency and substance). Pursuant to Action 5, states are required to modify their IP regimes in terms of accessibility and their economic substance. Consequently, the Netherlands incorporated the 'modified nexus' approach into the CITA, pursuant to which only intangible assets developed by the taxpayer itself will qualify for the application of the amended innovation box regime. A nexus formula will determine what portion of the R&D income will qualify for the innovation box regime.

iii State aid

The ECJ is currently handling an appeal lodged by the Netherlands regarding the decision of the European Commission in the Starbucks case. On 27 June 2016, the EC published the non-confidential version of its decision in which it held that an APA between the state and Starbucks Manufacturing BV (SMBV) constituted illegal state aid. Consequently, the Netherlands was ordered to reclaim the illegal state aid.

Although the Netherlands imposed a tax assessment on Starbucks to claim back these funds in accordance with the EC's decision, it nonetheless lodged an appeal with the ECJ. Its argument was that the ruling issued by the Dutch tax authorities was compliant with internationally accepted transfer pricing methods, and that the EC had applied an interpretation of the OECD transfer pricing guidelines that did not match the general internationally accepted view.

The EC disputed various aspects of this ruling, which was concluded in 2008 and was based on a transfer pricing report that applied the transactional net margin method. According to the EC, the comparable uncontrolled pricing method should have been the most appropriate method and, moreover, SMBV should not have been considered the 'least complex enterprise' for the relevant transactions.

Moreover, the APA confirmed a mark-up of 9 to 12 per cent of SMBV's operating expense to determine SMBV's arm's-length remuneration. Excess profits were transferred to Alki LP, an associated UK limited partnership, as a royalty deductible for Dutch tax purposes. The EC argued that the licence for using the Starbucks IP should have been valued at zero given that SMBV did not derive any benefit from it. By approving the incorrect methodology in the pricing agreement, the Netherlands granted a selective advantage to SMBV that should be considered illegal state aid according to the EC.

On 18 December 2017, the European Commission announced it had opened an in-depth investigation into the Netherlands' tax treatment of Inter IKEA. The case revolves around two APAs concluded between Inter Ikea Systems and the Dutch tax authorities.

iv General

In addition to the participation exemption regime and the innovation box regime, Dutch tax law provides for many other attractive tax incentives, such as a R&D wage tax credit, a tax relief scheme for environmentally friendly investments and a sustainable energy investment allowance.


i Withholding on outward-bound payments (domestic law)

Dividend withholding tax is levied at a rate of 15 per cent from those persons – whether resident or non-resident – who are entitled (either directly or through depositary receipts) to proceeds from shares or profit-sharing certificates in a Dutch resident entity. The actual amount of dividend withholding tax due is calculated on the basis of the proceeds of such shares or profit-sharing certificates.

The Netherlands does not impose any withholding tax on (outgoing) interest or royalty payments, except for interest on certain hybrid loans.

Historically, cooperatives were generally not obliged to withhold dividend tax upon distributing profits to members, subject to anti-abuse rules (see Section II.i). As of 1 January 2018, the general exemption from dividend withholding tax for members of cooperatives has largely been eliminated if the cooperative is classified as a 'holding cooperative'. This would be the case in all situations where the activities of the cooperative consist, in short, subject to all relevant facts and circumstances, for more than 70 per cent of holding and finance activities. Only less-than-5 per cent membership rights continue to benefit from an unconditional exemption from dividend withholding tax.

ii Domestic law exclusions or exemptions from withholding on outward-bound payments

Dutch tax law provides for various statutory exemptions from dividend withholding tax on dividend distributions, such as the Dutch participation exemption regime (see Section V.i) and the fiscal unity regime (see Section III.i).

Generally, Dutch dividend withholding tax is an advance levy that may be credited against the Dutch CIT due the level of the shareholder. In addition, several special tax regimes are adopted into the Dutch Dividend Withholding Tax Act pursuant to which no (owing to an exemption) or less (owing to a refund or reduction) Dutch dividend withholding tax is levied.

For example, an exemption may apply if the beneficiary of the dividends is an EU resident and its shareholding in the distributing company would have qualified as a participation under the Dutch participation regime if it had been a Dutch resident company. Under certain conditions, it is also possible for non-European companies with investments in Dutch companies, such as pension funds, to claim back the tax withheld.

As of 1 January 2018, the Netherlands unilaterally applies a zero per cent rate for all distributions to qualifying (>5 per cent) corporate shareholders in the EU/EEA and entities tax resident in a country that has concluded with the Netherlands a double taxation treaty with a dividend clause (irrespective of whether than treaty itself provides for a zero per cent rate). A new anti-abuse rule also applies, denying the exemption if the shareholding is both held with the principal purpose, or one of the principal purposes, of avoiding the levy of dividend withholding tax and the shareholding is part of an artificial (non-genuine) structure or transaction or series of transactions.

iii Double tax treaties

The Netherlands has one of the most extensive treaty networks in the world (currently standing at around 100 bilateral tax treaties), providing for, inter alia, beneficial allocation of the taxing rights on capital gains and reduced withholding tax rates.

Moreover, the tax treaties concluded by the Netherlands typically protect against discriminatory taxation by any state other than the resident state of the taxpayer. Most bilateral tax treaties concluded by the Netherlands provide for a reduction of dividend withholding tax (down to 5 or even zero per cent).

As an OECD member state, the Netherlands also supported the development of the Multilateral Convention to Implement Treaty Related Measures to Prevent BEPS, more commonly known as the MLI. The Netherlands co-signed the MLI, which will see most of the Dutch bilateral treaties changed (subject to reciprocity) to include the (mostly anti-abuse) measures introduced by the MLI. The Netherlands endorsed all MLI features without opting out. The main anti treaty-abuse rule elected by the Netherlands is the principal purposes test (PPT).

iv Taxation on receipt

Dividends, interest and royalties received by resident companies are generally included in the taxpayer's tax base with the exception of dividend distributions that qualify under the participation exemption regime (see Section V.i).

Moreover, given the extensive tax treaty network, Dutch-resident companies can generally avoid double taxation on foreign-sourced income by claiming relief in respect of incoming dividends, interest and royalties. If no tax treaty is available, relief from double taxation is usually provided under the Dutch unilateral rules for the avoidance of double taxation.


i Thin capitalisation

The Netherlands does not have debt-to-equity rules or similar anti-interest stripping provisions.

ii Deduction of finance costs


Pursuant to settled case law by the Dutch Supreme Court, the characterisation of a financing arrangement as debt for Dutch tax purposes in principle follows the characterisation of such arrangement for civil law purposes. In this respect, a repayment obligation is considered to be an essential element for the financing arrangement to qualify as debt for civil law purposes. However, there are three exceptions applicable to this general rule, pursuant to which the debt is reclassified as equity for Dutch tax purposes, namely in cases of:

  1. a sham loan (where the parties only created the appearance of a loan, while in fact intending to realise an equity contribution);
  2. a loss financing loan (where it is immediately clear from the terms of the loan that the claim resulting from the loan is (in part) worthless, because the loan cannot be repaid and, as result of which, the funds have permanently left the taxpayer's capital); and
  3. a hybrid financing (or participating) loan (where, based on the terms of the loan, the lender in fact is participating in the borrower's capital. In this scenario, debt is reclassified as equity if:
    • the duration of the loan is perpetual (i.e., more than 50 years), or the loan is repayable only in the event of the debtor's bankruptcy or liquidation;
    • the consideration payable on the debt is entirely or almost entirely contingent on profits; and
    • the loan is subordinate to all other creditors.

As a consequence, interest payments on a reclassified loan qualify as dividend distributions for Dutch tax purposes and are treated accordingly (i.e., subject to Dutch dividend withholding tax and – for qualifying participations – exempt under the participation exemption regime).

If none of these exceptions apply, the arm's-length interest expense should be deductible for Dutch CIT purposes (subject to any interest deduction limitation rules). In this regard, the Dutch Supreme Court has developed the concept of 'non-businesslike loans'. A loan between related parties is considered to be non-businesslike if the loan is granted under terms and conditions that would not have been agreed upon by independent (unrelated) parties in similar circumstances.

However, if it is not possible to determine a businesslike interest (by doing so, the loan in essence would become profit-sharing or deviate from the parties' original intentions), the loan is considered to carry a non-businesslike risk of default. These loans generally lack a loan agreement, a repayment schedule or any security. As a result, write-down losses on these loans are non-deductible. Using the 'suretyship analogy' method, as developed by the Dutch Supreme Court, the interest rate can be determined by considering the rate that a third party (i.e., a bank) would charge if the parent company put itself forward as guarantor.

A final factor in establishing whether the interest expense on a financing arrangement is deductible for Dutch CIT purposes is the existence of various specific interest deduction limitation rules.

Anti-base erosion

Dutch tax law provides for an anti-abuse provision that specifically targets situations that can be described as 'base erosion'. The common feature of such structures is that (group) equity is converted into debt using transactions that have a somewhat artificial character (and are not based on valid business reasons). Interest on and fluctuations in the value in respect of loans that are legally or de facto, directly or indirectly, owed to related entities, are not deductible to the extent these loans relate legally or de facto effectively, directly or indirectly, to one of the following transactions: distributions of profit or repayments of capital by the taxpayer (or an affiliated entity or individual) to a affiliated entity; capital contributions by the taxpayer (or an affiliated entity or individual) in a affiliated entity; or acquisitions or increases by the taxpayer (or an affiliated entity or individual) of an interest in an entity that becomes an affiliated entity as a result of the acquisition or increase.

However, this anti-abuse provision does not apply if the taxpayer can demonstrate that the debt and tainted transaction are predominantly motivated by business reasons (business motive exception), or the interest is taxed at the level of the recipient at a rate of (at least) 10 per cent (subject-to-tax exception).

Participation debt

Pursuant to the bad debt rules, it must be determined whether the acquisition price (i.e., cost price) of the subsidiary exceeds the Dutch company's equity for tax purposes. If it does, a 'participation debt' is present, and as a result, the excessive interest expense incurred on the participation debt is in principle non-deductible. The excessive interest is calculated by multiplying the interest expense for a particular year by the fraction of the average amount of participation debt divided by the average amount of total debt.

However, for reasons of practicality, the first €750,000 of interest expense per year is not affected by this rule. Moreover, an exception is provided for companies that can demonstrate that the acquisitions of, or capital contributions to, participations constitute an increase in the operating activities of the group as a whole. Interest expenses relating to such an increase of operational activities remains deductible. However, this exception does not apply in the case of a double-dip structure or a hybrid financing structure, or if it is unlikely that the taxpayer's operating activities would have been increased if the interest deduction were disregarded. As of 1 January 2019, the specific participation debt is anticipated to be eliminated in compensation of the 30 per cent EBITDA threshold to be introduced pursuant to the ATAD.

Acquisition debt

The third rule limiting interest expense deductions applies to any debt attracted for the acquisition of a Dutch target company that is subsequently joined into a fiscal unity with the acquiring entity. The interest expenses on these acquisition loans are only deductible if the profits of the target company are disregarded. In other words, the interest expense may only be deducted from 'own' profits of the acquiring entity. However, two safe harbour rules exist: a de minimis rule pursuant to which the first €1 million paid of interest on acquisition loans is not affected; and the interest is only non-deductible to the extent there is excess acquisition interest expense.

Regarding the second safe harbour, acquisition loans are considered excess acquisition loans only if the total outstanding amount of the acquisition loans in a given year exceeds a fixed percentage of the total amount of the acquisition prices. This percentage is initially 60 per cent in the year during which the target company is consolidated into the CIT fiscal unity with the debtor, and is reduced in annual steps of 5 per cent until it reaches 25 per cent after seven years.

Effective 1 January 2017, this interest limitation rule for acquisition debt was slightly adjusted to prevent tax avoidance schemes. As a result of these changes, debt pushdown schemes will no longer frustrate the limitation of deduction, and financing schemes can no longer be rebooted. As of 1 January 2018, further technical changes are anticipated to render these rules more effective. As of 1 January 2019, however, the specific acquisition debt rule is anticipated to be eliminated in compensation of the 30 per cent EBITDA threshold to be introduced pursuant to the ATAD.

Earnings stripping

As of 1 January 2019, the earnings stripping rule is anticipated to replace the participation debt and acquisition debt rules. Under the earnings stripping rule, net interest expenses is fully deductible up to the higher of 30 per cent of the EBITDA and €1 million. Any interest that was non-deductible owing to the application of the earnings stripping rule can be carried forward indefinitely.

iii Restrictions on payments

Pursuant to the Dutch Civil Code, a company limited by shares may make distributions to its shareholders and other entitled persons only to the extent its net assets exceed the sum of its called-up and paid-up capital and the reserves as required by law or the company's articles of association.

Moreover, a distribution test applies to BVs pursuant to which the company may only distribute profits to its shareholders (and other entitled parties) to the extent this does not interfere with the company's ability to pay its exigible and current debt.

iv Return of capital

A repayment of capital has no adverse tax consequences from a Dutch CIT perspective. However, a repayment of capital recognised as paid-up capital for Dutch dividend withholding tax purposes will trigger dividend withholding tax if and to the extent the taxpayer has net profits, unless the general meeting of shareholders has resolved in advance to make the repayment and the articles of association have been amended to reduce the nominal value of the ordinary shares by an equal amount. The capital recognised as paid-up capital for dividend withholding tax purposes may consist of formal capital, informal capital and share premium.

Hence, to repay capital (recognised as paid-up capital for Dutch dividend withholding tax purposes) without triggering Dutch dividend withholding tax, the nominal value of the ordinary shares must first be reduced by amending the articles of association.


i Acquisition

Share deal

A share deal, in which the shares in a Dutch entity are acquired, may be conducted either directly by a foreign entity or indirectly through a Dutch (acquisition) entity. In this respect, cooperatives are frequently used as shareholders for Dutch acquisition entities, given that Dutch cooperatives are in principle not subject to Dutch dividend withholding tax, provided that they comply with the anti-abuse rules (see Section I.i).

If the shares are purchased indirectly (i.e., through a wholly owned Dutch acquisition entity), a fiscal unity may be formed between the acquiring entity and the Dutch target company subject to certain requirements. Accordingly, interest expense on the acquisition debt at the level of the Dutch acquisition entity may be offset against the profits of the target entity (subject to the limitations on interest deduction for acquisition debt: see Section VII.ii).

If the shares are acquired directly (i.e., by a foreign company), the foreign shareholder may become liable to Dutch CIT pursuant to the non-resident taxation rules for foreign substantial shareholders if it does not satisfy the anti-abuse rules (see Section III.i).

Asset deal

An asset deal can be executed either directly by a foreign entity or indirectly through a Dutch entity that acquires the Dutch business or assets. In principle, the gains realised upon the sale of the assets is subject to Dutch CIT. However, provided that certain requirements are met, it is possible to defer the CIT due by applying a 'reinvestment reserve' that provides for a rollover mechanism for Dutch CIT due in respect of the gains realised.

ii Reorganisation

Dutch civil law offers various possibilities for mergers and demergers: a stock merger, business enterprise merger, a legal merger or demerger, and a legal spin-off. The CITA provides for several facilities – subject to certain conditions – by allowing a rollover of book values for the assets and shares transferred. In these cases, the transfer is effected on a non-recognition basis.

iii Exit

Dutch tax residents relocating their businesses to outside the Netherlands are in principle subject to Dutch CIT in respect of their realised and unrealised profits (i.e., hidden reserves and goodwill). Similarly, for entities migrating into the Netherlands, a step-up of all assets and liabilities applies.

If certain conditions are satisfied, the CIT due may be deferred if the taxpayer's new place of residence is an EU or EEA Member State.


i General anti-avoidance

In principle, Dutch tax law allows taxpayers to arrange their affairs so as to minimise the amount of tax payable. However, they may not initiate actions intended predominantly to reduce the amount of tax they that would otherwise pay. Although no statutory anti-abuse provisions exist under the CITA, various different doctrines can be seen in Dutch case law, which are sometimes used interchangeably. However, these doctrines are not panaceas, and they may only be applied by the Dutch tax inspector as a final resort.

The doctrine of 'independent determination (or reclassification) of the facts for tax purposes' describes the process in which the court labels a fact or set of facts from a Dutch tax perspective. The court may go beyond the formal paperwork and evaluate the 'substance' of a transaction (e.g., the proper classification of debt versus equity, sale versus lease and compensation versus disguised dividend).

The non-statutory concept of fraus legis ('abuse of law') gives the tax authorities the possibility to challenge the validity of a transaction if the decisive motive for entering into the transaction is to avoid taxes (subjective element), and the transaction is in breach of the purpose and intent (objective element). The transaction will then be considered abusive and will be treated differently from its legal form.

ii Controlled foreign corporations (CFCs)

The CITA does not provide for any specific CFC rules. However, subsidiaries are subject to an annual mark-to-market requirement if the taxpayer together with its affiliates holds at least 25 per cent of the shares in a subsidiary that is held as a portfolio investment and moreover is subject to a low-tax regime (where the indicative threshold is a rate of 10 per cent), and 90 per cent of the subsidiary's assets (including its lower-tiered subsidiaries) consist of low-taxed passive assets.

If a subsidiary fulfils these criteria, its profits are taxed at the level of the Dutch shareholder. However, a credit system is in place to prevent double taxation on these profits.

As of 1 January 2019, the Netherlands is expected to introduce the ATAD 'Model A' CFC rules (which have an income-based approach) for CFCs in low-tax jurisdictions (jurisdictions that are listed on the EU list of non-cooperative jurisdictions or that have a CIT rate of less than 9 per cent). In other situations, the Netherlands takes the position that the Netherlands already has CFC rules in the form of the arm's-length principle.

iii Transfer pricing

The Netherlands has incorporated the arm's-length principle into the CITA. It forms the legal basis for the Dutch tax authorities to adjust intercompany transfer prices in cases where related parties have entered into a transaction for a price or conditions that would not have been agreed upon between independent parties. This provision defines the term 'related parties' and describes the transfer pricing documentation requirements. Moreover, the provision includes specific rules for financial services companies (e.g., substance and real-risk requirements).

Generally, the Netherlands follows the OECD transfer pricing guidelines and has largely incorporated these guidelines into a transfer pricing decree. It has also incorporated the country-by-country reporting rules into the CITA as of 1 January 2016. These rules correspond to OECD BEPS Action 13 (i.e., applying the three-tiered documentation approach using a country-by-country report, master file and local file).

iv Tax clearances and rulings

The Netherlands is well known for the cooperative and constructive attitude of the tax authorities, and the possibility to discuss the tax treatment of particular operations or transactions in advance (upfront certainty) in an ATR or APA. An ATR provides the taxpayer with certainty regarding the tax treatment of international structures (e.g., the applicability of the Dutch participation exemption). An APA provides upfront certainty in respect of the transfer prices for intra-group transactions.

Both types of 'settlement agreements' are concluded by the Dutch ruling team working in close liaison with the Central Point for Potential Foreign Investors. This department provides foreign investors advance certainty on the tax treatment of their prospective investments in the Netherlands. An ATR or APA is typically valid for four years.

Further guidance is provided by the State Secretary of Finance through several decrees that govern Dutch ATR and APA practice. For example, a Dutch top or intermediate holding company in an international structure seeking to obtain an ATR should fulfil the minimum Dutch substance requirement if the group does not have any operating activities in the Netherlands.

Moreover, Dutch taxpayers that satisfy certain conditions may apply for 'horizontal monitoring', a form of cooperative compliance for which they sign a covenant with the Dutch tax authorities based on trust, transparency and mutual understanding. With a horizontal monitoring agreement, the tax authorities provide the taxpayer certainty on tax issues as early as possible, to minimise the administrative checks and audits afterwards.

Recently, the Dutch government announced it is reviewing the Dutch ruling practice. It is expected that changes will be made to the Dutch ruling practice, taking effect mid 2019. Rulings will still be granted to companies that have economic nexus with the Netherlands.


Dutch legislative changes over 2018 have been large in quantity. Early in 2018, a large number of changes to the Tax Code were announced. On Budget Day 2018, the ATAD implementation proposal (which the Netherlands is bound to implement) and a proposal to further bolster the investment climate were proposed.

Initially, the Dutch government had the intention to abolish the dividend withholding tax in its current form. The abolishment of the dividend withholding tax would be accompanied by the introduction of a conditional withholding tax on dividends, interest and royalties paid to group companies in low-tax jurisdictions and in abusive situations.

Owing to pressure from opposition parties, the proposal to abolish the dividend withholding tax was replaced by a number of alternative measures to further improve the Dutch investment climate. The most important alternative measure is the (further) lowering of the CIT rates to 15 per cent (lower bracket) and 20.5 per cent (top bracket) by 2021.

The conditional withholding on dividends is currently being reconsidered, whereas the proposal to introduce a conditional withholding tax on interest and royalty payments to low-tax jurisdictions or in abusive situations is expected to be published by year-end 2019 (with the expected effective date being 1 January 2021).


Both the OECD and European anti-BEPS projects continue to be key topics in the Netherlands. Owing to pressure from the EU, the Netherlands is taking stricter measures against tax avoidance. However, the Netherlands keeps the business climate in mind when designing the measures against tax avoidance. The lowering of the CIT rate to a level below the EU average underlines the continued commitment of the Netherlands to a climate favourable to foreign direct investment.


1 Jian-Cheng Ku is a legal director and Rhys Bane is an associate at DLA Piper Nederland NV.