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Changes In The Netherlands Business Environment
Worldwide events can significantly impact business - this was the case in the Netherlands last year, and the effects will continue to play out in 2016.
The continuing Greek economic crisis and subsequent adjustments to financial markets impacted trade and commerce globally in 2015. The EU decision on quantitative easing had a similar effect, and resulted in a sharp fall of the Euro as opposed to a variety of other currencies.
China’s struggle to obtain maximum economic growth has caused concern in the business community in the Netherlands, as the country is an important trading partner for China, especially since the new tax treaty came into force in 2014.
At the end of last year, the OECD reports on Base Erosion and Profit Shifting (BEPS) were finally released. Much has been written on the fundamental changes BEPS will bring to business models and supply chains. A number of frictions and gaps in international taxation have been identified, and subsequent solutions have been proposed. It will clearly take time for the impact of all changes to be fully adopted by the respective governments and applied in practice, but the BEPS project is already leading to a shift in the behaviour of tax authorities and taxpayers.
A number of domestic legislative changes on the following issues have increased awareness throughout the Netherlands business community:
- The Common Reporting Standard (CRS) has been drafted into domestic law and applies for financial years starting in 2016. In terms of transparency and exchange of (tax and financial) information, a number of other initiatives were announced or further outlined.
- Additional FATCA guidelines were finally issued by the Dutch legislator last year, in order to provide some necessary consistency and guidance on a number of IGA definitions and a variety of practical situations that frequently occur.
- One of the amendments that received little attention in 2015 was the introduction of rules to manage and limit excessive remunerations for employees/directors working for financial institutions.
- Following changes in EU law (Directive 2013/34/EU) a number of compliance issues were amended with regard to publishing annual accounts for corporate entities; most notably a change in the period for them.
On a macro-economic scale, the Netherlands will be chairing the EU in the first half of this year. Although that usually coincides with a number of substantial EU initiatives, no significant changes are to be expected this time.
A number of BEPS action points entered into force in the Netherlands on 1 January 2016:
- Rules against hybrid mismatch arrangements: the participation exemption for dividends is excluded to the extent the distributing company is granted a deduction for the distribution.
- Country-by-country reporting obligations: a set of rules imposed to MNE companies to report a variety of intercompany transactions within and between affiliated companies.
- Amended substance rules for Dutch cooperatives and intermediary companies.
Other revised tax rules are expected to have a significant impact, including new tax consolidation rules that allow Dutch companies to form a group (‘fiscal unity’) if they are directly affiliated via another EU company. Case law from the ECJ required the Netherlands to change its tax grouping rules.
It will also be interesting to view developments around the new tax arrangement between the Netherlands and Curacao. For many years the Dutch/Dutch Antilles sandwich structure was a successful technique to funnel dividends and other distributions. The new tax arrangements break a number of traditional corporate set-ups, but create interesting new opportunities for other business models.
Finally, the new Netherlands/Germany treaty will have a positive effect on business. Outdated allocation rules have been replaced with new rules, bringing the treaty generally in line with OECD Model treaty guidelines.
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The advantages of the Dutch tax and legal system, including its absence of withholding taxes on interest and royalties, its participation exemption and company regulations will continue to be key factors for businesses that look to the Netherlands in order to expand trade. However, in particular cases the administrative burden on Netherlands business operations may increase, due to new reporting requirements. The adoption of OECD proposals and EU Directives in the country will result in the need to demonstrate real and substantial economic activity.
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