July 2005

The Netherlands

Taxplan 2007

On 29 April 2005, the Dutch State Secretary submitted the paper “Working on profit” to the Dutch Parliament. This paper contains several proposals, which aim to improve the Dutch investment climate. The proposals most likely will enter into force as of January 1, 2007. The most important topics of the paper are:

• The corporate income tax rate will be reduced to 26.9%. For profits up to an amount of € 41,000, the corporate income tax rate will be reduced to 20%.
• The Dutch capital tax of 0.55% on capital contributions in companies resident in the Netherlands will be abolished as of January 1, 2006.
• A special corporate income tax rate of 10% will be introduced on interest paid and received on intercompany loans.
• The participation exemption, based on which capital gains and dividends derived by a Dutch company from a qualifying subsidiary are tax exempt, will be simplified and improved. The participation exemption will apply on shareholdings of 5% or more in active companies or in passive investments that are subject to a sufficient level of taxation.
• A new cross border regime will be introduced in which, under certain circumstances, the losses of EU subsidiaries can be offset against the taxable income of the Dutch parent company.

To finance these favourable changes, a number of measures are proposed of which the most important are:

• The period in which tax losses may be offset against the taxable profits of the three preceding years will be reduced to 1 year, whereas the period in which these losses can be used to reduced future profit will be limited to 8 years.
• The facility for a temporary write off of participations will be abolished.
• A loss incurred from the liquidation of a participation will no longer be tax deductible.
• The deprecation of real estate will be limited to the fair market value thereof.

The required percentage of ownership for the application of the participation exemption and the exemption from dividend withholding tax is reduced to 20% as of January 1, 2005, and the participation exemption and the withholding tax exemption apply to the extended list of companies which include:

• certain co-operatives,
• mutual companies,
• certain non-capital based companies,
• savings banks,
• funds, and
• associations with commercial activity.

Aruba

The Aruba exempt company (AEC) is a particular form of limited liability company that is often used in international structures. It is exempt from Aruban profit tax and dividend distributions by an AEC are not subject to the Aruba dividend withholding tax, which was introduced in 2003. Certain international developments - in particular discussions about harmful tax competition attended by the EU Code of Conduct group - have forced the Aruba government to re-evaluate its AEC legislation. In any case, the Aruba government has committed itself to changing the current fiscal regime governing AECs by December 31 2005.

In certain circumstances the government intends for AECs to remain exempt from domestic profit tax and dividend withholding tax whereby no filing of tax returns is required. As an alternative, AECs could opt for fiscal transparency. This development should allow all business currently conducted by AECs to be continued after December 31 2005 with no or minimal negative consequences. Certain rules will be set for exempt AECs becoming taxable entities and vice versa.

After January 1 2006 AECs may continue to be incorporated and considered tax exempt if they engage solely in allowable activities, such as holding, financing and licensing activities under certain conditions.

An AEC will become liable to tax in Aruba if in any year an exempt AEC engaged in holding activities receives more than 5% of its income from shares or other profit participations from a participation located in a jurisdiction in which it is not subject to a tax on profits of at least 50% of the tax rate valid in Aruba at that time (presently 35%).

An AEC that engages solely in one or more of the aforementioned activities will be exempt from profit tax on the proceeds of such activities. Any deviation from the allowable activities triggers the immediate loss of tax-exempt status. The AEC also immediately becomes subject to domestic dividend withholding tax. Where the allowable activities are engaged in again in a subsequent year, the AEC can revert to its exempt status. However, the exemption from dividend withholding tax remains inapplicable. Once the dividend withholding tax exemption has been lost, it cannot be reclaimed.

No specific actions need be taken in connection with tax-exempt status by existing AECs that derive profits solely from the qualifying activities under the amended AEC regime. However, such AECs must keep accounts and (if requested) submit information to the tax authorities as stipulated in the Aruban General Tax Act (among other requirements).

On the basis of the proposal, limited liability companies and AECs incorporated after December 31 2006 may elect to be considered fiscally transparent from an Aruban tax perspective (the possibility to 'check the box'). The fiscally transparent entity would also be exempt from dividend withholding tax in Aruba.

[top]

Contact us

If you wish to receive more information on these subjects please call your contact person at Wassenaar (+31 70 5140267), Amstelveen (+31 20 6400361), Antwerp (+32 3 2260883) or Luxembourg (+352-061 928 462).

The information in this News Flash is informative and should not be relied upon in decision making. International tax planning and financial structuring are subject to constant changes and we therefore strongly recommend that each potential user of our services seeks professional tax and legal advice in his/her country of origin before deciding on the use of international financial structures.

FTC and CSB will not be liable for any damages, costs and expenses resulting from or incurred with any action taken, or any action omitted, based upon any information contained in this News Flash.

[top]

© 2007 - FTC Trust B.V. - Disclaimer / Copyright