The Netherlands
Relaxations to the Dutch participation exemption
Recently, a new decree was published regarding the Dutch participation exemption. The most important relaxations relate to the low-taxed portfolio participation (i.e. the assets test and the effective tax rate test) and the real estate investment company. The decree has retro-active effect to 1 January 2007.
 1. Low-taxed portfolio participation
As of 2007, the participation exemption is not applicable to benefits from a low taxed portfolio participation. A participation is considered to be a low-taxed portfolio participation if both the assets test and the effective tax rate test are not fulfilled. The “assets test” determines whether the assets of the participation consist, directly or indirectly, mainly (i.e. for more than 50%) of ‘free portfolio investments’. The “effective tax rate test” determines whether the direct participation is effectively subjected to 10% tax on its income calculated according to Dutch standards. Participations in qualifying real estate investment companies are in any case not considered low-taxed portfolio participations.
1.a. Relaxations regarding the asset test
- iThe Ministry of Finance has now agreed that for these purposes the consolidated financial statements of the participation can be used as a starting point.
- An inter-company loan that is lent onwards through several chains of the group can be considered as ultimately only one receivable on the aggregated balance sheet of the group for the qualification of a free portfolio investment. This prevents the current situation whereby in some cases the receivable is counted twice or more in the aggregated group balance sheet.
- For the purposes of the qualification of assets, the Ministry of Finance has agreed that real estate owned by one related company but that is being used in the business of another related company is tested as if it were part of the property of that related company. However, if the property of that related company is recorded on the aggregated balance sheet for less than 100% (if the shareholding is less than 100%), the relaxation applies pro rata.
1.b. Relaxations regarding the effective tax rate test
For the purposes of the calculation of the effective taxation of a portfolio participation, losses that are transferred to this company within the framework of a group relief scheme do not have to be taken into account.
2. Real estate investment company
 The participation exemption is applicable to participations in real estate investment companies. A participation is considered to be a participation in a real estate investment company if more than 90% of the assets of that participation (on a consolidated basis) qualify as real estate. In that situation, the subject to tax test does not have to be met.
Relaxations regarding the real estate investment company
- It has been agreed that the financial lease of immovable property qualifies (to the lessee) as real estate for the purposes of this provision. The same goes for other situations where the company has almost the full economic ownership of the real estate.
- It has been clarified that assets which are held temporary by the company do not preclude the application of the participation exemption if those temporary assets are directly related to the exploitation of the real estate and the receipt or the payment is hindered by causes that are outside the control of the company. Some examples are given in the Decree, for instance VAT receivable from the (foreign) tax authorities in connection with the refund of VAT which was related to the acquisition of real estate.
Belgium
The new double tax treaty between the United States of America (U.S.) and Belgium entered into force on 1 January 2008, whereas the effective date for the withholding taxes was 1 February 2008. The new treaty reduces tax related barriers to trade and investment flows between the U.S. and Belgium and it facilitates cross-border capital movement.
One of the highlights of the treaty is the introduction of a 0% withholding tax on dividends paid by a company resident in one country to a parent company resident in the other country, provided :
Dividends paid by a Belgian subsidiary: the U.S. parent company owns 10 % or more of the capital of the Belgian subsidiary for at least 12 months on the date the dividend is declared. This 10 % threshold is significantly lower than the threshold in other double tax treaties recently concluded by the U.S. and could be of particular interest for U.S. parent companies.
Dividends paid by a U.S. subsidiary : the Belgian parent company holds at least 80 % of the voting power in the U.S. subsidiary for at least 12 months on the date the dividend is declared and only if the Belgian parent company meets certain specified tests from the Limitation on Benefits article.
The exemption from withholding tax also applies to pension funds, provided the dividends are not the result of business activities by the fund.
The new treaty introduces a 0 % percent withholding tax for most interest payments to beneficial owners resident in the other contracting state.
Together with the Belgian Notional Interest Deduction, this abolition of withholding tax for interest payments makes direct loans between the U.S. and Belgian affiliated companies more attractive, and increases possibilities for companies in Belgium to finance U.S. affiliates.
Royalty payments to beneficial owners in the other contracting state will remain exempt from withholding tax.
Furthermore, the new double tax treaty extends the benefits of the treaty to companies owned by so-called ‘equivalent beneficiaries’, which may provide opportunities for multinational groups that are based in the EU, EEA, Switzerland or NAFTA countries.
IFA Annual Congress Brussels 2008
During the annual congress of the International Fiscal Association in Brussels from 31 August to 5 September 2008 we will organise an informal cocktail reception on each congress day. It would be our pleasure to welcome you there!
More detailed information will follow in the coming months.
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