On April 14, 2017, the Dutch Finance Secretary wrote a letter to Parliament, the Annex of which addresses Parliament’s questions and concerns over the Netherlands advance pricing agreement (APA) / advance tax ruling (ATR) practice (the “Rulings”).
On December 29, 2016, the Netherlands published the Law of December 21, 2016 in the official gazette, which implements the EU Directive 2015/2376 (the "Directive") on the automatic exchange of tax ruling and APA information with other EU member states from January 1, 2017.
On January 11, 2017, the Finance Secretary sent a letter to Parliament on the status of the exchange of new and existing tax rulings as of December 31, 2016. The letter says that the Netherlands experienced difficulties in meeting the OECD and Directive deadlines for the exchange of existing rulings. The government reached an agreement with the OECD to meet its commitments under BEPS Action 5 by December 31, 2017.
The below examples address specific situations that the Rulings may cover.
Hybrid financing and hybrid entities
(See BEPS Action 2)
The purpose of advance rulings is to provide taxpayers with legal certainty for specific tax positions. According to the April 14th letter, tax evasion arising from hybrid mismatches is not due to Dutch law, but instead to differences in tax between jurisdictions. For example, a situation could arise where a fee paid by a non-Dutch subsidiary to its Dutch parent is considered a deemed dividend in the Netherlands, which was previously exempt under the participation exemption, while the fee in the subsidiary’s country was treated as deductible interest.
As of January 1, 2016, the participation exemption is not applicable to certain mismatches. ATRs that were previously issued that included these mismatches are not valid as of January 1, 2016. The government said that taxpayers can continue to obtain advance agreements on the classification of a financial instrument, but it cannot lead to an exemption from a fee that is deductible in another country.
The mismatch in CV/BV structures is due to differences in tax laws in the Netherlands and other countries (e.g., the U.S.). The Netherlands considers this structure transparent, while the U.S. regards it as opaque. The Anti-Tax Avoidance Directive on hybrid mismatches with third countries (ATAD 2), which will come into force on January 1, 2020, will neutralize the CV/BV mismatch.
(See BEPS Action 7)
Where a foreign company has a permanent establishment (PE) in the Netherlands, an APA can address how much profit to allocate to the PE. The Netherlands also addresses the situation where a Dutch legal entity has a foreign PE. To prevent double taxation, there is relief under Dutch law where the Netherlands does not impose tax on profits made by the PE.
If the Netherlands signs the MLI, this will implement additional anti-abuse provisions in tax treaties. See BEPS Action 15.