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Renewed Ruling Practice in the Netherlands – Deadline approaching!

Further to our earlier reaction on the renewed ruling practice in the Netherlands we would like to inform you about the (expected) approaching deadline of this ruling practice. The new ruling practice is assumed to be introduced from the 1st of July onwards. The message for those who still would like a ruling under the current practice is: “Act now!”. This is also applicable for those who would like an extension of their current ruling, even if circumstances remain unchanged, as extensions after the deadline will be reviewed in accordance with the renewed practice. Rulings signed before the introduction of the new practice will remain in place until their expiration date and will not be subject to the proposed changes. The changes compared to the current ruling practice will be discussed below.

Due to political and public attention for the Dutch ruling practice, the State Secretary of Finance, Menno Snel, decided to renew the system. On the 22th of November 2018, in a letter to the Dutch House of Representatives, the State Secretary outlined how the renewed ruling practice would take shape. The three previous mentioned pointers, addressed in the letter of the 18th of February, remain in place:

  • Transparency;
  • Process and
  • Substance.


Transparency
The State Secretary notes that he is aware of the increased need for public information on, by the Dutch tax authorities accepted, international rulings. Therefore, the following measures will be taken for rulings with an international nature:

  • An anonymised summary will be made publicly available;
  • A yearly report will be released relating to the issued rulings; and
  • The research by independent experts will be broadened to all rulings.

Quantera Global has concerns about the privacy of its clients regarding the anonymised summary. There is a risk that competitive sensitive information could (indirectly) be disclosed, which would be at odds with the Dutch confidentiality requirement that is embedded in Dutch tax law. Because how anonymised is anonymised? There is a risk for potential trace back to the tax payer on the facts stated in the summary.

Furthermore, by publishing a yearly report, which has been done from 2017 onwards, the Dutch government already acts in line with the European guidelines on transparency. An additional public summary of each individual ruling is in our view not necessary to meet the European standards for transparency. Although the State Secretary seems to share this view, he feels that the need for public information is becoming more and more important and has therefore decided to release public summaries. He is confident that this can be done in a confidential way and refers to the currently established practice in Belgium.


Process
In order to accept rulings in a consistent way the following measure will be taken:

  • A centralized coordination will be implemented for rulings with an international nature, by introducing a committee (“College International Fiscale Zekerheid”) which needs to sign off on these rulings.

Although centralization of the ruling practice can contribute to the quality of the ruling process, we also expect that handling time will increase since more people are involved in the decision to grant a ruling.


Substance
As the battle against tax avoidance remains a major issue for the Dutch government, rulings for MNE’s with limited substance in the Netherlands have been revisited. Measures regarding substance for international rulings, are as follows:

  • A new “economic nexus” requirement will be introduced;
  • Purpose of structures will be more critically reviewed. Rulings will not be accepted if tax saving, either on a Dutch or international level, is the main motive for the structure;
  • Rulings on transactions involving entities that are located in a country that is mentioned on the EU-list of non-cooperative countries or in a tax havens will not be given;
  • A duration term of a maximum of 5 years will be introduced. However, in exceptional cases a 10-year limit can be applicable; and
  • A fixed format will be introduced.

The economic nexus requirement is an open criterion. The current substance list consists of clear and fixed requirements that has to be met. By introducing a new open requirement, views can however differ on whether there is sufficient economic nexus or not.

Quantera Global also believes that exclusion of rulings regarding transactions involving entities located in either non-cooperative countries or tax havens is too short-sighted. Valid business activities located in those countries should not be disqualified solely due to location. If tax savings are the main motive for the structure, a ruling could already be refused for that reason (regardless of the country involved).

If you have any questions about the new ruling practice or need assistance with your ruling under the current or future requirements, please do not hesitate to contact us.

Rudolf Sinx
Managing Director
r.sinx@quanteraglobal.com

Stefan Ubachs
Senior Manager
s.ubachs@quanteraglobal.com

Juliette Rutten
Analyst
j.rutten@quanteraglobal.com