Proposed changes to Dutch tax ruling practice

On 22 November 2018, the Dutch State Secretary of Finance issued a letter in which he set out his plans to change the Dutch tax ruling practice for international structures.

One of the key changes relates to the current requirement that taxpayer(s) need to meet the substance requirements to obtain a ruling. It is proposed to replace this with an “economic nexus” requirement. Furthermore, more emphasis will be placed on the international impact (e.g. foreign tax avoidance motives become more relevant). In addition, some procedural changes are proposed.

Below you will find a summary of the proposed plans.

• To further increase transparency, it is planned that the Dutch tax office will publish an anonymous summary of each ruling issued.
• The tax office will continue to publish an annual report for all rulings dealing with international structures (first report was published for 2017). The scope of the report will be extended to capture all types of rulings (rather than just Advance Tax Rulings and Advance Pricing Agreements which were now covered in the report). There will be special attention for ruling requests that did not result in a ruling.
• Independent experts will continue to review the process for all international rulings.
• Further centralization within the tax office is planned for international tax rulings. A new centralized team will be set up that will be responsible for the issuance of rulings. Two tax inspectors will need to sign off for each ruling (which is in line with the current practice).

• Currently, taxpayers need to meet the substance requirements to be eligible for a ruling. It is planned to replace this with an “economic nexus” requirement for the Dutch entities. In short, this means that the activities should actually be carried out for the account and risk of the Dutch taxpayer. The activities should furthermore fit the function(s) of the Dutch taxpayer. Sufficient and capable staff should be available to carry out the activities and the operating expenses should fit the activities carried out. A separate decree will be published to further set out the criteria.
• There will be more emphasis on the purpose of the structure for which the ruling is requested. In case the key purpose of the structure is to avoid Dutch ór foreign taxation, no ruling will be issued. In addition, rulings will not be issued for structures or transactions involving low-taxed entities or involving entities residing in a country that is on the EU list of non-cooperative jurisdictions.
• The overall structure will be reviewed in more detail, meaning that the tax office will review where flows of income originate from and where they flow to. Furthermore, it will be reviewed which activities are carried out in the Netherlands in that respect.
• Currently, there is no standard on the duration of rulings. It is therefore planned to align this. International rulings will be valid for five years maximum. However, in exceptional situations this may be extended to ten years (for example for long-term contracts). In such case,  an additional review will be built in though (for example after five years).
• A standard template will be prepared for international rulings. Furthermore, all rulings will have the legal characterization of a specific settlement agreement (“vaststellingsovereenkomst“).

The State Secretary shared four examples of structures that may currently be eligible for a ruling, which will no longer be eligible for a ruling under the new rules.

The State Secretary aims to implement the changes as per 1 July 2019 and expects to share an update on the progress in April 2019.