Bill on a conditional dividend withholding exit tax

20 January 2022

On 8 December 2021, a fourth memorandum of amendment (nota van wijziging or the "Amendments") to the Bill on a Conditional Dividend Withholding Exit Tax (Spoedwet conditionele eindafrekening dividendbelasting or the "Bill") was submitted to the Dutch Parliament.

The Amendments were due to the many concerns about the Bill's compatibility with EU and tax treaty law that were expressed by scholars and practitioners. The Bill's main features remain unaffected. As explained in our previous blogs, the Bill introduces an exit charge ("Exit Charge") for Dutch dividend withholding tax ("DWT") purposes for certain cross-border reorganisations (e.g. cross-border mergers, migration).

The most important changes can be summarised as follows:

• The Exit Charge will only be levied from investors in a non-EU/EEA jurisdiction with which the Netherlands has not concluded a tax treaty. Therefore, subject to certain anti-abuse provisions, the proposed Exit Charge is essentially limited to portfolio shareholders that are resident for tax purposes in a non-EU/EEA jurisdiction with which the Netherlands has not concluded a tax treaty that includes a dividend provision.
• The Exit Charge will only be triggered if a company "departs" to a non-EU/EEA jurisdiction that does not levy DWT itself or provides a step-up for DWT purposes upon entry (a "Qualifying Jurisdiction"). In the original proposal, EU and EEA Member States could also be regarded as a Qualifying Jurisdiction if the aforementioned conditions were met (e.g. Cyprus, Estonia, Latvia and Malta). This is no longer the case. Examples of jurisdictions that could still be targeted after the Amendments are the United Kingdom, Hong Kong and Singapore.
• The system of the preservative tax assessment (conserverende naheffingsaanslag) was abandoned. Instead, the proposed Exit Charge will be embedded in the existing system for the levy of DWT and will be levied immediately upon a designated cross-border reorganisation without the possibility of deferring payment or remission. The proposed Exit Charge will be levied from the shareholder by means of a deemed deduction by the company. The company must then remit the DWT to the Tax Authorities within one month after the company has moved to a Qualifying State by way of a designated cross-border reorganisation.
• In addition, the Bill provides that a company incorporated under foreign law will deemed to be resident for tax purposes in the Netherlands for a period of ten years after the transfer of its place of effective management to a Qualifying State, provided that the company prior to moving its place of effective management has been a Dutch tax resident for five consecutive years (the "Residency Fiction"). Companies incorporated under Dutch law are already deemed to be a Dutch tax resident by way of a fiction under currently applicable law. Whether the Netherlands is able to effectuate its taxing rights under the Residency Fiction in respect of treaty states will depend on whether the company will qualify as a Dutch tax resident under the applicable tax treaty (e.g. under the relevant tie-breaker or MAP provision).
• As long as the Netherlands is able to effectuate its taxing rights under the Residency Fiction, the Exit Charge should not be applicable.
• The revised Bill will have retroactive effect to 9:00 on 8 December 2021.

The Bill's initiator asked for the advice of the Council of State (Raad van State). The Council of State may advise against certain aspects of the Bill and recommend that further amendments be made, especially since the Bill – even after the Amendments – is still being criticised in tax literature. If there are any further developments, we will keep you informed through this dedicated Houthoff Tax Blog.

15 December 2020

On Friday 11 December, several members of the House of Representatives asked questions about the Bill on a Conditional Dividend Withholding Exit Tax (Spoedwet conditionele eindafrekening dividendbelasting or the "Bill"). Many concerns about the Bill's compatibility with EU and tax treaty law were expressed, particularly by the coalition parties (e.g. VVD and CDA). As a result, it remains to be seen whether the Bill will have enough support in the House of Representatives.

We have selected two matters raised by the members which we think are relevant. The Bill's initiator has been asked to address the following concerns:

• The Council of State (Raad van State), Professor Peter Kavelaars (Erasmus University Rotterdam) and Professor Dennis Weber (University of Amsterdam) are very critical of the Bill. Because of this, the coalition parties have asked whether the initiator is still planning to proceed with the Bill.
• The members expect that the Bill will severely impact the Dutch business climate for both Dutch and foreign investors. It is also expected that profitable companies will exit the Netherlands when the EUR 50 million threshold is within reach and that the Bill will decrease the value of shares of Dutch companies, including listed companies. This may negatively impact investments in the Netherlands.

We will update you as soon the Bill's initiator addresses these questions and keep you informed on any further developments.

Please find the link to the various questions here.

1 December 2020

The Bill on a Conditional Dividend Withholding Exit Tax (Spoedwet conditionele eindafrekening dividendbelasting or the "Bill") was discussed yesterday in the Standing Committee on Finance (Vaste commissie voor Financiën or "Committee"). In short, the Bill introduces an exit tax for Dutch dividend withholding tax purposes for certain cross-border reorganisations (e.g. cross-border mergers, migration). The Bill should have retroactive effect from 18 September 2020. The Committee invited various specialists and stakeholders, including Jan van der Streek (a professor of law at the University of Amsterdam, who had previously provided input to the Bill's proposer) and Dirk Jan Sinke, a representative of the largest employers association of the Netherlands (VNO/NCW), to give their views on the Bill.

In short, the various invitees stated that it remains uncertain whether the Bill is compatible with EU law and applicable tax treaties. Case law from the European Court of Justice and Dutch Supreme Court provides arguments that can be made both for and against the Bill's compatibility with EU and tax treaty law. Furthermore, the Committee also discussed the fact that the Council of State (Raad van State) and the Dutch Association of Tax Advisers (Nederlandse Orde van Belastingadviseurs) are very critical of the Bill (e.g. regarding scope, impact on the investment climate and basic principles). It remains to be seen whether the Dutch legislator is willing to take a calculated risk that the Bill could get overruled by the Dutch Supreme Court. A number of taxpayers have already undertaken actions that may be targeted by the Bill, so it will be interesting to closely monitor the discussion in Parliament in the coming weeks. On 10 December 2020, the Bill will be discussed in the House of Representatives.

Read more about the Bill in our Tax News Update. We will keep you informed of any further developments through this dedicated Houthoff Tax blog.