In this edition of our FTC Trust news flash, we look at a wide range of developments in the Dutch and EU tax legislation. From a further decrease of the Dutch corporate income tax rate to an EU proposition for a Common Consolidated Corporate Tax Base. Also we will discuss the importance of the so called Bilateral Investment Treaties for the protection of foreign investments and inform you of the abolition of the Declaration of Non-Objection.

Abolition of the Declaration of Non-Objection

Recently the Ministry of Justice has announced that as per 1 July 2011 the statutory Declaration of Non-Objection from the Dutch Ministry of Justice, which is required for the incorporation of BV’s and NV’s as well as for the amendment of the articles of association of BV’s and NV’s, will be abolished. This means that from this date on the incorporation and the amendment of the articles of association can be done much quicker than before.

The preventive control as materialized in the Declaration of Non-Objection, will be replaced with a new system of continuous control. Besides BV’s and NV’s also other legal entities, such as foundations, cooperatives, branches of foreign legal entities, will be subject to the new control system.

Tax Agenda

On the 14th of April the Dutch State Secretary of Finance published his Tax Agenda as a starting point for the preparations of a series of legislative changes. In the third quarter of 2011 the Dutch parliament will initiate a bill to further lower down the top rate of the corporate income tax by 1%. The corporate income tax rate for profits exceeding € 200.000,- will be reduced from 25% to 24%. For taxable profits less than € 200.000,- a rate of 20% remains applicable.

New regulations (2012) regarding the request for an extension for filing of the tax return

As from 2013 the regulations regarding the request for an extension for filing of the tax return will be amended. A request for an extension for filing of the 2012 tax return will only be granted in case a company filed its tax return on time at least twice in the three preceding years (2011, 2010 and 2009). A tax return is considered to have been filed on time in case it is filed before the issuing of a reminder and/or final notice.

In case the 2009 tax return has not been timely filed, it is important to file the 2010 and 2011 tax return on time as the Dutch tax authorities will otherwise deny the request for an extension for filing of the 2012 tax return.

Dutch Tax Treaty Policy 2011

Because of important developments in the international tax arena it was necessary for the Netherlands to issue a new memorandum on Dutch tax treaty policy. Taking the OECD Model Convention as a basis, the Netherlands strives to contend with specific characteristics of potential tax treaty partners with tailor-made solutions. This approach precludes the use of a standard Dutch model tax treaty.

The Netherlands consistently seeks to agree on exclusive resident state taxation for participations (of in general 10% or more) and endeavors to expand its treat network to (more) developing countries.

Dividends
The memorandum indicates that the Netherlands will endeavor to include a 0% dividend withholding tax rate in the source country for participation dividends (i.e. the beneficial owner is a company holding a minimum percentage – usually 10%-25% - of the share capital or voting power of the distributing entity). To curb treaty shopping specific anti-abuse rules may be included in tax treaties.

Interest and royalties
Consistent with current policy, the Netherlands will endeavor to include a 0% withholding rate for the source country for cross border interest and royalties payments. This is logical since the Netherlands does not levy withholding tax on royalties and ordinary interest. The memorandum states that at the request of a tax treaty partner, the Netherlands is willing to consider, within reasonable limits, a specific anti-abuse rule.

Capital gains
Capital gains realized in connection with the sale of shares will only be taxable in the country of residence of the seller, irrespective of the nature of the underlying assets.

EU: Common Tax Base

On 16 March 2011 the European Commission has proposed a common system for calculating the tax base of business operating in the EU.

The proposed Common Consolidated Corporate Tax Base (CCCTB), would mean that companies would benefit from a “one-stop-shop” system for filing their tax returns and would be able to consolidate all the profits and losses they incur across the EU. Member states would maintain their full sovereign right to set their own corporate tax rate.

Instead of complying with different rules in each Member State, a company or a qualifying group of companies would have to comply with just one EU system for computing its taxable income.

The proposal now needs to be discussed and agreed by Member States in Council, following the opinion of the European Parliament.

Protection of foreign investments: Bilateral Investment Treaties

Nowadays one should not only take tax considerations into account when investing abroad, but also the protections offered by Bilateral Investment Treaties. When structures for foreign investments are created, these protections are often overlooked.

Because of the growing worldwide political instability and the threats by hostile government that international companies experience, it is getting more important to overlook the protections that Bilateral Investment Treaties (BIT’s) offers.

A good example is the ExxonMobil case with assets in Venezuela. ExxonMobil was able to freeze USD 12 billion of Venezuela’s state owned oil company’s assets after claiming the protection of the Netherlands – Venezuela BIT. However the arbitration is still pending, it is clearly that BIT protection is worth to take into consideration when structuring future or existing foreign investments.

A BIT is a treaty between two states establishing terms and conditions for the protection of investors of one state and their investments in the other state.

Besides the fact that the Netherlands is a favorable holding jurisdiction, it also has a large number of investor friendly BIT’s. Furthermore, the Netherlands BIT’s generally offer the protection for indirect investments made by a Netherlands company through local subsidiaries.