Update: Revised ruling practice 2019

Alert, June 12, 2019

Introduction

Following the published letter of 22 November 2018, in which the ruling practice reform had been announced, the Dutch State Secretary of Finance has published a draft policy decree for the renewed ruling practice for rulings with an international aspect (hereinafter: the "draft policy decree") on 23 April 2019. The State Secretary has again emphasized that a more transparent ruling practice will be created with this new practice and that the quality of the ruling practice for companies with real economic activities is further safeguarded.

Decree

An interested party can request consultation upfront to obtain certainty in advance for tax purposes ex ante. The preliminary consultation policy is laid down in general terms in the Fiscal Administrative Law Decree (In Dutch: Besluit Fiscaal Bestuursrecht, hereinafter: “BFB”). This draft policy decree is a supplement to the BFB and applies to preliminary consultations to obtain certainty in advance in the form of a ruling with an international aspect.

The draft policy decree covers amongst others the process of issuing new rulings; the topics dealt with by the new International Fiscal Assurance Team (In Dutch: Behandelteam International Fiscale Zekerheid, hereinafter referred to as "Team IFZ") are; the yet to be introduced International Fiscal Assurance College (in Dutch: College International Fiscale Zekerheid, hereinafter: “College IFZ”); the information that is required for a ruling with an international aspect; the content of the settlement agreement and that the tax authorities' efforts are in principle aimed at concluding bilateral Advanced Pricing Agreements. Hereunder certain aspects of the draft policy decree are discussed in more detail.

At least two signatures

Every request to obtain certainty in advance within the scope of the draft policy decree, will – in any case – be formalized in a settlement agreement. This settlement agreement is provided by the Dutch tax authorities with at least two signatures: a signature from the primary negotiator and a signature from the College IFZ.

International Investors Desk

In addition, if there is a situation with a potential foreign investor, a request for consultation upfront for certainty in the form of a ruling with an international aspect, should be addressed to the International Investors Desk (in Dutch: Aanspreekpunt Potentiële Buitenlandse Investeerders, hereinafter: “APBI”). Should such a situation occur, the APBI will convene with a primary negotiator.

Refusal of certainty in advance

In the BFB the general framework within which the Dutch tax authorities can refuse prior consultation is set out. Furthermore, in order to prevent the facilitation of international tax avoidance, no preliminary consultation to obtain certainty in advance in the form of a ruling with an international aspect will take place if:

  • the requesting entity does not meet the cumulative conditions that it is part of a group that (i) carries out any business-related operational activities (economic nexus) in the Netherlands, (ii) and these business-related operational activities are carried out at the expense and risk of the requesting entity, (iii) for which there is sufficient relevant staff available at group level in the Netherlands and (iv) these activities fit within the function of this entity within the group; or
  • the requested certainty is related to  transactions that involve companies that are a resident of low-tax jurisdictions or states listed on the EU-black list

In addition to the BFB, the draft policy decree states that no preliminary consultation will be conducted to obtain certainty in advance in the form of a ruling with an international aspect if saving Dutch or foreign tax is the sole or decisive motive for carrying out of the (legal) act(s) or transactions. However, this was already part of the BFB.

Anonymous publication

An anonymous summary of each ruling with an international character will be published, in which, among other, a brief explanation will be given of the facts and circumstances and - where relevant - of the most important conclusions from transfer pricing reports or other documents, of an analysis of the requested tax certainty based on the relevant laws and regulations and the conclusion on the basis of which the settlement agreement was concluded. It is currently unclear as to where the summaries will be published.

An anonymous summary will also be published in cases in which preliminary consultations have been held with the goal to obtain a ruling with an international character, but which goal has not been reached. In that case, the summary will contain an explanation setting out the specifics as to why the ruling was not granted.

Economic nexus

Economic nexus is one of the new requirements for a ruling. This concept, which was introduced in the published letter of 22 November 2018 by the Dutch State Secretary of Finance, will replace the current (minimum) substance requirements and is worked out in further detail in the draft policy decree.

The new requirement of economic nexus is explained by the State Secretary as conducting business-related operational activities carried the Netherlands. In addition, these business-related operational activities must be carried out at the expense and risk of the requesting entity, for which there is sufficient relevant staff available at group level in the Netherlands and these activities fit within the function of this entity within the group. The specific meaning of this concept is set out by hypothetical situations that serve as illustrative examples. The examples, however, do not yet provide complete clarity as to what this meaning explicitly entails.

Duration

The applicant for a ruling with an international aspect will in first instance indicate for which period the certainty is requested. The certainty in advance laid down in a ruling with an international aspect will in principle apply for a maximum of five financial years. If the facts and circumstances justify an exception - for example in the case of long-term contracts - a maximum term of ten years may be used with a mid-term evaluation.

Termination of the ruling

In the current APA decree, the ruling loses its validity within the specified term if a relevant change of legislation occurs. In addition to relevant changes of legislation, the new draft policy decree also states that later changes to relevant policy rules and case law can also be a reason to terminate the ruling.

Expected implementation

The State Secretary has indicated that at present, the plan is for the decree to be published in the Government Gazette before 1 July 2019 so that the policy will take effect on 1 July 2019. The debate on the draft policy decree in the Lower House of Parliament is currently scheduled for June 4, 2019. There may still be changes as a result of this debate.

Richard Smeding at smeding@wlp-law.com.

Gerwin de Wilde at dewilde@wlp-law.com.