The Netherlands company as a tax planning tool

Globalserve SeminarNovember 2013

By Phani Schiza Antoniou

Netherlands, the countryEU memberHighly strategic commercial location that makes it

the “Gateway to Europe”Natural hub for logistics and headquarter

functions High educated, multi cultural and multi-lingual

workforceHigh level of infrastructureGood economic and financial climate

Netherlands, the country

One of the major and reputable international Business centers Extensive Network of double Tax Treaties; 90!! Good Banking system Advantageous Tax System especially with respect to taxation

of dividends, royalties and interest Tax Rulings possible Political stability Well organized system for monitoring and controlling

financial markets and compliance through laws and regulations

A Dutch B.V

BV=Private company with limited liability Set up by a notary (make up of their articles) Official Permission of Minister of Justice Minimum share capital is €1 Registered in the Chamber of Commerce Director can be also legal entity Min director/ shareholder 1 Director can be non Dutch resident but for management

and control purposes Dutch director is advisable

Summary of Dutch Tax RatesCorporate Income Tax upto € 200000 Corporate Income T above € 200000

20%25%

Tax on Dividends received 0% if participation exemption applies i.e 5% minimum shareholding in the subsidiary held as participation not as an investment

Royalty income 5 %

Capital gains tax in the case of disposal of participation

0% if participation exemption applies i.e 5% minimum shareholding in the subsidiary, held as participation not as investment

Profit from the trading in securities 20-25%

Withholding tax on dividends other than EU or Treaty countries

15%

Withholding taxes on interest, royalties 0%

Summary of the Dutch tax system

GENERALCorporate Income Tax rate=25%Taxable income EUR 200,000=20%≦Innovation box income taxed at 5%

Average ETR of Dutch multinational: Between 8% and 20%

Summary of the Dutch tax system

No withholding tax on interest and royalty payments

Dividend withholding tax =maximum 15%Qualifying dividends to EU or 0% treaty

country=0%No capital taxes

Summary of the Dutch tax system

CORPORATE INCOME TAX SPECIFICSTax loss carry forward: 9 yearsTax loss carry back:1 Thin cap: 3 to 1 or the group’s debt-to-equity ratioInterest deduction limitations when eroding the

Dutch taxable basis of operating subsidiariesThese rules do not affect international

structuring

Summary of the Dutch tax system

INNOVATION BOX Offers attractive opportunities to lower the ETR for income

allocable to intangible assets to 5% if: The intangible assets are self developed, which includes contract

research for the risk and benefit of the tax payer and participation in R&D activities by means of cost-contribution arrangements (but excludes marketing intangibles created by the tax payer, such as brand names, logos and assets alike)

The intangible assets are purchased, provided the purchased intangible asset loses its independence and is merged into a new self developed intangible asset.

At least 30% of expected income can be attribute to patents/registrations obtained for the intangible asset

Summary of the Dutch tax system

Test per intangible asset, to be met at the end of the first year of applying for the Innovation Box for an intangible asset

No upfront approval of Dutch tax authorities is required, so Innovation Box can be applied for by ticking a box in the Dutch corporate Income tax return. However, in order to determine income to be allocated to Innovation Box, consultation with Dutch tax authorities upfront is highly recommended.

Summary of the Dutch tax system

PARTICIPATION EXEMPTION

100% income (dividend income and capital gains)exempt from Dutch corporate income tax if it concerns an investment in shares of at least 5% of the nominal paid-in capital, unless it concerns a portfolio investment company(no minimum holding period)

Summary of the Dutch tax system SUBSTANCE REQUIREMENTSFocus should be on substance requirements set by the jurisdiction that pays to a Dutch holding company;

Presence of local operationsKey executives 'agenda for travel to the holding company jurisdiction

The Dutch tax authorities published the following list with minimum substance requirements that should be met by so-called financing flow-through ruling companies:

At least 50% of the Board of Directors(BOD) MEMEBRS SHOULD BE Dutch residents(live and work there)and of a certain professional level and the company has adequate staff (itself or from 3rd parties)for performing the functions

All key strategic/material decisions of the BOD should be taken in the Netherlands, such as the entering into contracts and signing of documents

The main bank account should be held in the Netherlands The bookkeeping is maintained in the Netherlands The address of the company should be in the Netherlands and the company is not

considered a resident in another state on the basis of a tax treaty The company has sufficient equity considering its activities and the risks to be

absorbed by the company.

DOUBLE TAX TREATY WITH UKRAINE

DIVIDEND*o% applies if min shareholding 50% and at least

$300000 investment ** 5% applies if at least 20% shareholding

In all other cases 15%

0%*/5**%/15%

INTEREST*2% rate applies to interest paid on loans granted by a banking institution and financial or to interest paid by the purchaser of machinery and equipment to the

seller in connection with a sale on credit; the 10% rate applies in all other cases.

2*/10%

ROYALTIES* 0% rate applies to royalties paid for a copyright of

scientific work, a patent, trademark, design or model, plan, secret formula or process, or for

information concerning industrial, commercial or scientific experience. The 10% rate applies to

royalties paid for the use of, or the right to use, a copyright of scientific work, (including

cinematograph film and films or tapes for radio or television broadcasting).

0*/10%

DOUBLE TAX TREATY WITH RUSSIA

DIVIDEND

•If 25% ownership in the subsidiary Russian company and minimum investment of •€ 75000

5*%/15%

INTEREST 0%

ROYALTIES 0%

Organigram

Russian company

Cyprus Ltd.

In any country

One or more BO’s

divi

dend

s

loan

s

inte

rest

s

Subsidiaries

Dutch B.V.

Russian company

Subsidiaries

Russian company

Dutch B.V.

Subsidiaries

Example loan

INTREST

Loan from Russian Comp. to subsidiaries

INTREST

INTREST

Witholding tax: 0%

Witholding tax: 0%

Witholding tax: 35%

Russian company

Subsidiaries (EU country without

treaty)

Russian company

Dutch B.V.

Subsidiaries (EU country)

Example dividendDividend from subsidiaries in Argentina to Russian holding

Witholding tax: 0%

Witholding tax: 0%

Witholding tax: 15%

Cyprus Ltd

Witholding tax: 0%

Comparison of Luxembourg and Dutch Tax Rates

Luxembourg company Dutch company

Capital It has minimum amount and has to be paid in advance according to the type of company

No minimum

Corporate tax 28.8% 20 % upto € 20000025% above € 200000

Tax on Dividends received O% if participation exemption applies i.e •10% minimum shareholding or a minimum of € 1.2 m investment•For at least 12 months•EU co or if non EU to be taxed at tax rate at least equal to 10.5%

0% if participation exemption applies i.e •5% minimum shareholding in the subsidiary •held as participation not as an investment

Royalty income 5.85% 5 %

Comparison of Luxembourg and Dutch Tax Rates.

Luxembourg company Dutch company

Capital gains tax in the case of disposal of participation

O% if participation exemption applies i.e •10% minimum shareholding or a minimum of € 6 m investment•For at least 12 months•EU co or if non EU to be taxed at tax rate at least equal to 10.5%

0% if participation exemption applies i.e •5% minimum shareholding in the subsidiary,• held as participation not as an investment

Profit from the trading in securities

28.8% 20-25%

Thin capitalisation rules 15:85 equity /debt 1:3 equity /debt

Withholding tax on dividends other than EU or Treaty countries

15% 15%

Comparison of Luxembourg and Dutch Tax Rates.

Luxembourg company Dutch company

Tax loss carried forward indefinite 9 years

EU dividend , interest and royalty directives

Yes Yes

Extensive network of DTT 64 90

DTT with Russia :WHT on dividend

5%*/15% *10% participation And € 80000 investment

5%*/15%*25% participationAnd € 75000 investment

WHT on royalty and interest

0% 0%

Exchange of information Yes Yes

Limitation of treaty benefits

Will not apply provided substansive business in one of the states

Will not apply provided substansive business in one of the states

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