Abolishing dividend tax
With effect from 1 January 2020, the government proposes to abolish the dividend tax. At the same time a withholding tax will be introduced on dividend distributions to affiliated companies. As from 2021, this will also apply to interest payments or royalty payments between affiliated companies. The rate of the withholding tax will be equal to that of the highest tax bracket in corporation tax, being 23.9% in 2020 and 22.25% in 2021. The withholding tax will only be levied if the receiving company is established in a country with low tax rates or if there is a question of abuse. The Ministry of Finance will publish an exhaustive list annually of countries that qualify as having low tax rates.
Please note!
The proposed anti-abuse provisions apply not only in the case of direct payments between companies, but also for (contrived) structures with interposed companies and in situations with hybrid entities.
Controlled foreign companies
The government wants to introduce a measure to tackle abuse with so-called ‘controlled foreign companies’ (CFCs). A CFC is understood to be a body that is subject to corporation tax that has an (in)direct interest of more than 50% in another body or has a permanent establishment. The body could perhaps hold this interest jointly with an affiliated party. The other body or permanent establishment only qualifies as a CFC if it is established in a state that does not levy taxes on profits of bodies, or levies taxes at a tax rate of less than 7%, or is included in a list of non-cooperative jurisdictions. The anti-abuse measure roughly means that interest, dividends and royalties of CFCs are deemed to be tainted benefits. If the CFC does not pay out these tainted benefits (in good time), the Tax and Customs Administration adds them to the profit of the Dutch holding company after deduction of the corresponding costs.
Tip: This anti-abuse provision does not apply in situations where the CFC brings significant economic activity to bear. Where the CFC generally receives non-tainted benefits or runs a financial enterprise and receives the tainted benefits mainly from third parties, then the anti-abuse measure is likewise not applicable.
