2020 Dutch Budget adopted - Increased substance requirements for Dutch resident service companies as from 2021
On 17 December 2019, the Upper House of Parliament approved the 2020 Dutch Budget proposals (the Budget), the proposals implementing the amended EU Anti-Tax Avoidance Directive to counter hybrid mismatches and the proposals implementing the EU Mandatory Disclosure Directive. Our Tax Flash of 17 September 2019 contains an overview of the main changes for corporate taxpayers.
As announced in our Tax Flash, Dutch resident intragroup service companies will have to comply with increased substance requirements (i.e. from minimum substance requirements to ‘relevant substance’ requirements) in order to avoid exchange of information with other jurisdictions (see below for more details). It has now been confirmed that the ‘relevant substance’ requirements will apply as from 1 January 2021.
For the date of entry into force of the other changes, reference is made to our Tax Flash of 17 September 2019.
Current rules for Dutch resident service companies
Currently, Dutch resident companies whose activities in a year predominantly (70% or more) consist of receiving and on-paying interest, royalties, rent or lease amounts to and from group companies based outside the Netherlands and which apply the Dutch tax treaty network or an EU Directive (Service Companies) must meet certain requirements with respect to their substance in the Netherlands, i.e. the minimum substance requirements.
For a year when tax treaty or EU Directive benefits are claimed, Service Companies must confirm in their Dutch corporate income tax return that they meet the minimum substance requirements to avoid spontaneous exchange of information by the Dutch authorities with the relevant tax treaty or EU Directive partner. Such partner country may take this information into account in assessing whether it will grant tax treaty or EU Directive benefits to the relevant taxpayer.
Relevant substance requirements Service Companies
As from 1 January 2021, Service Companies must for a year when tax treaty or EU Directive benefits are claimed confirm in their Dutch corporate income tax return that they meet the ‘relevant substance’ requirements. If the requirements are not met, spontaneous exchange of information by the Dutch authorities with the relevant tax treaty or EU Directive partner will occur. The relevant substance requirements basically consist of the minimum substance requirements plus the following two additional requirements:
- the Service Company must incur annual salary costs of at least EUR 100,000, which amount must constitute a remuneration for the financing, licensing, renting or leasing activities; and
- the Service Company must have for a period of at least 24 months own office space in the Netherlands at its disposal, which property must be used to effectively carry out its financing, licensing renting or leasing activities.
Service Companies claiming tax treaty or EU Directive benefits should assess whether they meet or are able to meet the above requirements.
We will keep you informed on further developments. Please contact your trusted adviser at Loyens & Loeff in case you have any queries.