Dutch guideline for reportable arrangements (DAC6) published

Open standards: lack of clarity in the interpretation of terms

Despite the fact that we are dealing with extensive legislation, there is a lack of clarity in the interpretation of terms on many provisions and subjects. This is due to the fact that the European legislator has made extensive use of open standards. While the use of open standards instead of more detailed rules is understandable from the legislator's point of view, it also means ambiguity and uncertainty. For intermediaries and businesses, but also for the tax authorities. That is why during the legislative process it was promised that the tax authorities would draw up this Guideline.

Which questions does the Guideline answer?

In practice, there already are many more questions than are answered in the Guideline. Yet, the Guideline does provide clarity on, among others, the following points:

• An important eye-opener is that arrangements which at first sight appear to be purely domestic may, on closer inspection, fall within the scope of the reporting obligation. The Guideline confirms, among other things, that a legal merger between two Dutch sister companies with a parent company established abroad is a 'cross-border arrangement', even though the merger concerns two Dutch companies. Whether this arrangement is also reportable, depends on whether a hallmark is met.
• The 30% rule is a Dutch facility that makes it attractive for highly qualified, foreign personnel to come to the Netherlands. Although this scheme contains a tax benefit, advising or making use of this scheme does not have to be reported (under hallmark B.2). 

• Certain mismatches between legislation in different countries must be reported, for example specific situations where interest is deductible in one country but not taxed, or taxed at a lower rate, in the other. According to the Guideline, this does not only concern interest actually paid, but also imputed interest (e.g. on interest-free loans). This is striking in the sense that there is no actual 'payment' as specified under Hallmark C.1.
• If interest paid by a group company in the Netherlands is deducted and the foreign receiving group company is not taxed because of a zero rate, but its shareholder is taxed because of CFC legislation there, it still falls under hallmark C.1. Whether or not this must also be reported depends on the Main Benefit Test, see below.
• A merger in which a foreign subsidiary merges into its Dutch parent must be reported (hallmark E.3). This is independent of whether any tax benefit is intended or achieved. The Guideline does not answer the question of whether an intra-group sale of a participation also becomes subject to reporting under hallmark E.3. and whether or not the application of the participation exemption is relevant here.
• Certain hallmarks only apply if the so-called Main Benefit Test is met. In short, in practice the 'Main Benefit Test' will have been met: 
  • if a construction would not go ahead without the expected tax benefit, or 
  • if elements have been added to a construction in order to obtain a tax benefit artificially.

If you would like to know more about the European DAC6 directive, please read more here.

What does it mean for you?

The Guideline provides answers to a number of important questions. In particular, the obligation to report mergers and the treatment of interest (whether or not imputed) has been clarified, as has the application of the 30% rule for expats. However, many situations remain unclear, such as how to deal with sales of participations within a group.

In cases where even with this Guideline in hand, there is still ambiguity about the obligation to report, we expect that the arrangement will often be reported to the tax authorities for the sake of certainty, in order to avoid the risk of possible penalties. Naturally, we, as advisors, will include the DAC6 aspects of our advice in our discussions with you.