Effective as of 2014, The Netherlands applies by means of a decree (Uitvoeringsbesluit internationale bijstandsverlening bij de heffing van belastingen, hereinafter: the Decree) certain minimum substance requirements for so-called financial service companies - i.e. Dutch group financing companies, which are deemed to be predominantly engaged in intra-group financing, lending and/or licensing activities. On 28 November 2019, the Dutch State Secretary of Finance stated that the minimum substance requirements will be expanded in an amendment to the Decree, which has been reaffirmed in the Tax Plan Package 2021 on 15 September 2020.
Insofar these measures are not met, the following may ensue:
Furthermore, these substance criteria are also of importance for:
Current relevant substance requirements
Pursuant to article 3a of the Decree, the current relevant substance requirements for Dutch resident financial service companies are:
New relevant substance requirements
Besides the ten aforementioned already existing Dutch substance criteria, two additional criteria should be fulfilled by financial service companies:
The expansion of the Decree was published in the Government Gazette on December 27, 2019, and the policy is expected to take effect on January 1, 2021 (simultaneously with the proposed conditional withholding tax on interest and royalties).
Substance in light of COVID-19
The COVID-19 crisis most likely also impacts the possibility to comply with substance requirements. It may be difficult to comply with requirements that at least half of the total number of directors and other persons with decision-making power qualifies as tax resident in the Netherlands (or abroad) and that management decisions are taken in the Netherlands (or abroad).
In accordance with the OECD, the Dutch government has taken a willing approach that travel restrictions imposed due to the current COVID-19 pandemic should not affect the tax residency of companies, the recognition of permanent establishments and the application of substance requirements (as set forth above).
Should you have any questions on how the changes in substance requirements for financial service companies will affect your business, please do not hesitate to contact us.
Richard Smeding – firstname.lastname@example.org
Gerwin de Wilde – email@example.com
13 October 2020