Dividend withholding tax: withholding obligation for holding cooperatives and extension of the withholding exemption to contracting states
Further to the legislative proposal that has been adopted on 19 December 2017, the Dutch government introduced a withholding obligation in the dividend withholding tax for ‘holding cooperatives’ per 1 January 2018.
Prior to this date, apart from abusive practices, the distribution of a dividend made by a holding cooperative is not subject to dividend withholding tax, while dividend distributions by BVs and NVs are subject to dividend withholding tax, unless an exemption applies. BVs, NVs and cooperatives are used in similar international tax structures. Therefore the European Commission has requested The Netherlands to align its legislation. The new legislation includes that dividend distributions by holding cooperatives (distributions to members with an interest of 5% or more only) are subject to dividend withholding tax at a rate of 15%. A ‘holding cooperative’ is defined as a cooperative which activities primarily (for 70% or more) consist of holding shares in associating companies or funding (both directly and indirectly) affiliated entities or individuals. To determine whether a cooperative qualifies as a holding cooperative, an activity test has to be performed (i.e. the 70%-test). The activity test is initially based on the balance sheet, but may also contain other elements, such as the kind of assets and liabilities, revenue, employee working hours and activities. In other words, ‘real cooperatives’ with at least 30% activities not consisting of holding shares in associating companies or providing funding (e.g.: directly holding real estate in the cooperative) will still be exempt from dividend withholding tax in 2018. There will remain a difference between holding cooperatives and real cooperatives, since it is not the intention of the new cabinet to subject real cooperatives to dividend withholding tax.
Furthermore, the new legislation contains measures to extend the withholding exemption for participation dividends for BVs, NVs and cooperatives. From now on, not only EU / EER situations but companies that are resident in a state with which the Netherlands has concluded a tax treaty containing a dividend article can benefit from the withholding exemption. Additionally, an anti-abuse provision is added, ensuring that no withholding exemption applies in case of abuse. Abuse is defined as the situation where shares in a Dutch resident company or holding cooperative are being held with the main purpose or one of the main purposes to avoid dividend withholding tax at another using an artificial construction or transaction.
We advise to review whether the new legislation affects your structure. The new legislation does not only affect cooperative based structures, but also existing structures with BV’s or NV’s, due to the fact that starting on 1 January 2018 the withholding exemption no longer applies in case of abuse. Moreover, every dividend distribution of a Dutch company has to be accompanied by a statement, explaining that all the conditions for the withholding exemption are met (including the statement that there is no abuse).
Please do not hesitate to contact one our contact persons if you have any questions about this topic or require more information. Alternatively, you are welcome to contact your trusted adviser of the Loyens & Loeff Real Estate & Tax Team.
Bartjan ZoetmulderPartner Tax adviser
Bartjan Zoetmulder, tax adviser, is a member of the Investment Management practice group in our Amsterdam office. He focusses on real estate, with a specific emphasis on tax structuring of investments in/from CEE and in Dutch property.T: +31 20 578 56 58 M: +31 622 22 06 93 E: firstname.lastname@example.org