Update of the Dutch ruling practice

23/11/18

On 22 November 2018, the Netherlands’ State Secretary for Finance published a letter updating the Netherlands’ policies on the issuing of tax rulings with an ‘international character’.

Taxpayers can continue to obtain upfront legal certainty on the Dutch tax law implications – including transfer pricing – in a particular case via a ruling with the tax authorities, e.g. an Advance Tax Ruling (ATR) or an Advance Pricing Agreement (APA), also in an international setting. However, under the updated policies, certain changes will apply.

Changes

The main changes are:

Transparency: building on international developments in transparency in tax matters, the Dutch tax authorities will publish anonymised summaries of individual rulings with an international character.
Economic nexus: rulings with an international character will only be available to taxpayers with (sufficient) economic nexus in the Netherlands.
Main purpose: rulings will no longer be available in case the main purpose of the business structuring is obtaining a tax advantage, be it a Dutch or foreign tax advantage.

The State Secretary for Finance aims at implementing and executing the updated ruling practice as per 1 July 2019.

Transparency

The Netherlands adheres to the international developments on transparency in tax matters, including those involving the outcomes of the OECD BEPS Action Plan on the exchange of information on rulings. In its policy letter the State Secretary for Finance has announced that the Dutch tax authorities will make anonymised summaries of APAs and ATRs with an international character issued available to the public. Furthermore, the questions submitted to the APA/ATR-team will be made public.

This measure will provide further guidance on the views taken by the Dutch tax authorities on the application and interpretation of the respective tax laws in certain cases, and further enhances transparency about the issuing and content of rulings.

Economic nexus

Under the newly established policy, the taxpayer applying for an ATR or APA will be required to have sufficient ‘economic nexus’ in the Netherlands to conclude a ruling. This means that the level of relevant operational (group) business activities in the Netherlands will have to match with the position and function of the relevant Dutch entity (or entities). According to the State Secretary, the ‘economic nexus’-threshold is substantially higher than the current ‘substance’-requirements for accessing the ruling practice. Only taxpayers with such sufficient economic nexus are eligible to apply for a ruling and obtain upfront legal certainty on their Dutch tax position.

In addition to having sufficient economic nexus, the purpose of the business structuring becomes more relevant: in case the main purpose of the transactions is obtaining a national or international tax advantage, a ruling will not be granted. In this respect, rulings will not be available to taxpayers who are engaged in transactions with entities resident in states that are on the EU list of non-cooperative jurisdictions, or on the Dutch list of low-taxed jurisdictions.

Administrative guidance

Further administrative guidance on the policy update is expected on relative short notice, given the intention of the State Secretary to give effect to the update as per 1 July 2019.

What does this mean for you?

The publishing of the summaries, provided that they are sufficiently and adequately anonymised, should not have any significant impact on your position. This new policy clarifies the conditions under which a ruling can be obtained. In certain cases this may mean a more stringent approach because the ‘economic nexus’ requirement may have a stricter effect than the current substance requirements. The ‘economic nexus’ condition for obtaining a ruling does require an analysis of all facts and circumstances of a specific case, as, to a certain extent, is also the case under the ‘substance requirements’ today.

We will keep you informed on relevant developments.