Dutch Cabinet announces additional withholding tax on dividend payments

03/06/20

In a letter to the Dutch House of Representatives dated29 May 2020, the Dutch Cabinet announced that it considers introducing a new withholding tax on dividend payments to certain countries as of 2024. This measure will be introduced in the context of addressing tax avoidance and will apply to dividend payments to countries with a profit tax rate of less than 9% and countries that are on the EU list of non-cooperative jurisdictions. The new tax would also apply if the Netherlands has concluded a tax treaty with these countries.

What does this possibly mean for your company?

The new withholding tax may affect Dutch-basedcompanies that pay dividends to shareholders located in low-tax countries (i.e., countries with a profit tax rate below 9%), or EU-listed non-cooperative countries. It is expected that the Netherlands will levy the new withholding tax on such dividend payments from 2024 onwards, even if the Netherlands has concluded tax treaties with the countries concerned.

The latter point as well as the agreement on this point by the Dutch House of Representatives and the Senate should not, however, be taken for granted (also considering the general elections to be held in March 2021 for a new House of Representative). Developments at an international level, driven by the OECD, with regard to cross-border payments that are not taxed or are subject to insufficient taxation may also influence the new withholding tax. However, we note that the Dutch cabinet's intention is clear.

Additional tax on dividends and conditional withholding tax on interest and royalties

By mid-2018, the Dutch government had the intention to abolish the dividend withholding tax. In addition, the cabinet had the intention to introduce a conditional withholding tax on payments of dividends, interest and royalties by entities established in the Netherlands to affiliated entities established in low-tax countries and in situations of abuse.

By the end of 2018, the Dutch government decided to maintain the dividend withholding tax, to introduce a conditional withholding tax on interest and royalties as of 2021, and to postpone the introduction of a conditional withholding tax on dividend payments. In addition, a study was announced at a later date on whether it is desirable to merge the previously proposed conditional withholding tax on dividend payments with the existing dividend withholding tax.

The Dutch Cabinet now concludes that additional measures against dividend payments to low-taxing countries are indeed desirable. Despite the enforcement of the existing dividend withholding tax and the introduction of anti-abuse measures in the dividend withholding tax as of 1 January 2018, it is still possible, according to the Dutch government, in certain cases to pay dividends to recipients in low-taxing countries within the same group, without these dividends being taxed. Because the Dutch government considers this to be undesirable, additional measures are being prepared in addition to the current dividend withholding tax to prevent dividend payments to low-tax countries from being untaxed.

The Dutch government intends to develop measures before the end of this cabinet period, to tax these dividend payments from 1 January 2024 as well. Moreover, the new withholding tax on dividend payments will be additional to the conditional withholding tax on interest and royalties that the Netherlands will introduce from 2021 onwards.