As from January 1, 2024, CWT will be levied on profit distributions that cumulatively meet the following two conditions:
A Dutch resident entity makes a profit distribution to an entity (“Recipient”) that – standalone or together within a cooperating group – has a controlling interest (in any case, >50% voting rights) in the distributing entity.
One of the following scenarios applies:
(a) The Recipient is located in a low-tax jurisdiction, or a jurisdiction included on the EU blacklist (“Tainted Jurisdictions”). Examples of such Tainted Jurisdictions include the Cayman Islands and Bermuda.
(b) The Recipient is a (reverse) hybrid entity (subject to certain exceptions). Distributions to such hybrid entities are generally subject to CWT, but a look-through rule provides for relief in case the dividend income is picked up at the level of the shareholder(s) of the hybrid entity. Foreign (e.g., U.S.) limited partnerships equivalent to Dutch CVs are considered transparent for purposes of this rule. This should reduce the number of (reverse) hybrid entities as foreign limited partnerships are generally treated as fiscally transparent by the relevant foreign jurisdiction (e.g., U.S.) as well.
(c) The structure is considered abusive (e.g., in case the Recipient is held, directly or indirectly, by an entity in a Tainted Jurisdiction and the sole purpose of the interposition of the Recipient is to secure a more favorable CWT position).
If due, CWT will be levied at the highest Dutch corporate income tax rate (in 2024: 25.8%). The already existing (non-conditional) 15% Dutch dividend withholding tax (“DWT”) will continue to apply. In case both CWT and DWT are due, the DWT will be credited against the CWT.
It is noted that similar CWT already also applies to interest and royalty payments since 2021.
When it comes to Dutch cooperatives, only distributions by ‘holding cooperatives’ (cooperatives mainly engaged in holding and financing activities) can be subject to DWT. The new CWT has a broader scope as it can subject distributions by all (i.e., both holding and non-holding) cooperatives to CWT if the two above-mentioned conditions are met.
Now is the time for U.S. investment funds with presence and/or investments in the Netherlands to verify whether they may be affected by the new CWT and determine whether any restructuring is required before January 1, 2024.
Want to know more about this topic? Reach out to one of our colleagues mentioned below.