Dividend exit tax for companies proposed
02/11/20
This item has been updated up to December 2021
On Friday 10 July 2020, the Dutch leftwing political party ‘GroenLinks’ published a bill to counter the loss of the Dutch dividend withholding tax claim, which may occur when companies/head offices are relocated from the Netherlands to certain other jurisdictions.
In 18 September 2021 through to December 2021, the bill was amended by means of four consecutive Letters of Amendment (“Nota’s van Wijziging”). The adjustments should remove the objections raised by the Council of State (“Raad van State”) and are reflected below.
By proposing this bill, GroenLinks aims to discourage companies that are considering relocating their headquarters.
What does this possibly mean for your company?
The proposed bill is important for two groups. The first group concerns companies involved in a relocation of their registered office to a non-EU/EEA state that does not apply a dividend tax itself or that provides a step-up upon entry ("qualifying foreign country"). The second group concerned are the shareholders of these companies, insofar as they are located in non-EU/EEA states with which the Netherlands has not concluded a tax treaty. In addition to relocations, cross-border legal mergers, divisions or share mergers are brought under the scheme. For the sake of efficiency the bill includes a franchise of EUR 50 million of the available profit reserves.
Taxable event
The proposed bill is aimed at various ways in which a head office can be relocated, as a result of which the existing Dutch dividend withholding tax claim could be forfeited. In particular, the bill introduces the following four cases as a taxable event:
- Cross-border relocation of the registered office of a Dutch company;
- Cross-border legal merger of a Dutch company;
- Cross-border division of a Dutch company, and
- Cross-border share merger of a Dutch company.
In order to fall within the scope of the bill, the destination of the company must be a qualifying foreign country, i.e. a non-EU/EEA state that does not apply dividend tax itself or provides for a step-up upon entry.
Under this bill, a tax is only levied on investors in non-EU/EEA states with which the Netherlands has not concluded a tax treaty.
The bill is retroactive to 8 December 2021, 09:00 AM.
Taxable base
According to the proposed bill, if one of these situations occurs, the company must declare dividend withholding tax. The dividend tax is paid by the company at the expense of the shareholders (investors). The basis on which the withholding tax is levied, is the so-called "pure profit" of a company. The “pure profit” includes not only the profit reserves of a company but also the latent profit reserves. The amount of the (recognized) paid-up capital may be deducted.
In principle, dividend withholding tax is calculated on the amount of a company's “net profit”. However, the withholding tax exemptions which apply in relation to the participation exemption, may be taken into account. The obligation to a final settlement therefore relates in particular to the dividend withholding tax claim that rests on the profit reserves to which the portfolio shareholders of a listed company are entitled.
Exception: the proposed exit tax is "conditional"
A condition for the tax proposed, is that the dividend withholding tax claim is due as a result of one of the four cases described above. If the Dutch dividend withholding tax claim is replaced with a comparable foreign tax claim, the proposed Dutchtax will not be levied. The proposed bill therefore stipulates that in all four cases described above, a “qualifying foreign jurisdiction” must be involved.
The bill originally defined the term “qualifying foreign jurisdiction” as a jurisdiction that does not levy a dividend withholding tax comparable to the Dutch dividend withholding tax, or a jurisdiction that on entry of a company recognizes the (deferred) profit reserves as paid-up capital (i.e. gives a “step-up”). In the Fourth Letter of Amendment of 8 December 2021, it has been added that it must concern a non-EU/EEAcountry. The exclusion of EU/EEA countries prevents possible conflicts with the EU freedom of establishment.
No deferral of payment
The company subject to the dividend exit tax withholding/payment obligation is not granted a deferral of the payment of the tax due.
Statutory right of recourse against the shareholder
In the original bill there was debate as to who would actually be the subject of the dividend exit tax. For regular dividend withholding tax this is not the distributing company, but the shareholder. However, the dividend exit tax will be levied at the company but (at the expense) of the shareholder. The bill provides a statutory right of recourse for the company against the shareholders who actually receive the dividend.
Step-up in basis upon immigration
The bill not only introduces a final settlement for relocation from the Netherlands, but conversely also arranges a step-up in basis when a foreign company is relocated into the Netherlands. This is an extension of the already existing step-up scheme for cases of cross-border divisions, mergers or share mergers. In this respect, the bill considers immigrations into the Netherlands and emigrations from the Netherlands in a broadly neutral manner.
Deemed corporate residence
In addition, a deemed corporate residence clause is introduced for legal entities incorporated under foreign law, but which have been resident in the Netherlands for at least five years. These legal entities are considered to be resident in the Netherlands for ten years after their relocation from the Netherlands. This clause applies to both dividend withholding tax and corporate income tax.
Finally
Please note that the bill will become law provided that both the House of Parliament and the Senate agree to it. During the parliamentary process, adjustments to the bill may be made. The bill is currently being discussed in the House of Parliament.
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