Tax Plan 2025: The Netherlands to introduce a written GAAR

18/09/24

Included in the measures of the Tax Plan 2025, a written General Anti-Abuse Rule (GAAR) has been proposed to be included in the Dutch Corporate Income Tax legislation. This rule stems from the Anti-Tax Avoidance Directive I (ATAD I). Pursuant to this rule, for the purposes of calculating corporate tax liability, the Netherlands will disregard an arrangement or a series of arrangements which, having been implemented primarily or partly for the purpose of obtaining a tax advantage that defeats the object or purpose of the applicable tax law, are not genuine, considering all relevant facts and circumstances. An arrangement may comprise more than one step or part. An arrangement or a series thereof will be regarded as non-genuine to the extent that they are not implemented for valid commercial reasons reflecting economic reality.

What does it mean for your organisation?

In the Netherlands, we already have the anti-abuse doctrine of fraus legis. Although, according to the Dutch Secretary of Finance, the introduction of a written GAAR will not bring material changes to how the Netherlands has applied anti-abuse legislation through the case-law-based fraus legis doctrine, it is becoming clear that by introducing an EU-based rule in corporate income tax, all EU-related jurisprudence on the application of this rule will become increasingly relevant. This was already arguably the case back in 2019 when the Netherlands decided to implement ATAD's GAAR through the fraus legis. The introduction of a written GAAR, however, clarifies all doubts. The CJEU has issued several rulings providing guidance on the application of GAAR measures included in various EU Directives, which will also apply when the Netherlands enforces the GAAR in the corporate income tax context. As a result, the national interpretation of the fraus legis doctrine need to be in alignment with EU law in those cases where EU law applies.

Finally, organizations should be aware that with the introduction of ATAD's GAAR in corporate income tax, alongside the continued application of the fraus legis doctrine in other areas, tax authorities and courts may potentially embark on adopting different approaches depending on the specific area of tax law in question, and depending on whether EU law applies, when addressing potential abuse by taxpayers.

The input from the European Commission

The introduction of a written General Anti-Abuse Rule (GAAR) in the Dutch Corporate Income Tax Act 1969 (Dutch CITA 1969) was initiated following a request from the European Commission to the Netherlands. This became public in April 2024 through a letter sent by the Dutch State Secretary of Finance to the House of Representatives (Tweede Kamer). In the letter, the State Secretary provided an outline of the contents of the 2025 Tax Plan package.

The ATAD's GAAR in more detail

The proposed rule (Article 29i Dutch CITA 1969) closely mirrors the wording of the General Anti-Abuse Rule (GAAR) included in Article 6 of the Anti-Tax Avoidance Directive I (ATAD I). The chosen wording is almost identical to that of the Dutch language version of ATAD I. When all EU Member States were required to implement (most of) the ATAD provisions in 2019, the Netherlands opted not to include a written GAAR. This decision was based on application of the general doctrine of fraus legis in the Netherlands. Fraus legis is a concept introduced by the Dutch Supreme Court in tax law that prohibits the abuse of law. It applies to arrangements aimed at tax savings, with no other non-tax-related significance, and which contradict the purpose and spirit of the law. Fraus legis is basically a substance-over-form rule aimed at tax-avoidance situations that contravene the object and purpose of the law. It also applies in the presence of specific anti-abuse provision.

It remains unclear why the European Commission initiated a discussion with the Netherlands as to an introduction of a written GAAR. Nevertheless, according to the Dutch Secretary of Finance, the introduction of a written GAAR will not bring about material changes in how the Netherlands enforces its anti-abuse legislation. However, a closer examination of the ATAD's GAAR suggests that the rule is broader than the fraus legis doctrine as developed. ATAD's GAAR refers to an arrangement that has been implemented "primarily or partly for the purpose of obtaining a tax advantage" ("the main purpose or one of the main purposes"), whereas fraus legis focuses on whether the decisive purpose of an arrangement is to avoid Dutch taxation. Arguably, ATAD's GAAR seems somewhat stricter to this end. Additionally, the outcome of applying the fraus legis doctrine typically involves a substitution approach to recharacterize an arrangement, which might differ from simply disregarding an arrangement under the GAAR, an elimination approach that is.

PwC's ATAD I and II overview

It follows from PwC’s ATAD I and II overview, that all EU Member States have implemented ATAD1's General Anti Abuse Rules (''GAAR'')'') since 2019. Nevertheless, many EU Member States were already applying a GAAR in their national law, either as a statutory rule in their domestic law or as a doctrinal approach. Some EU Member States had therefore indicated, when they had to implement ATAD1, that the anti-abuse rules currently implemented in their domestic laws were already in line with the GAAR. At the time ATAD was transposed in the Netherlands, the legislator believed that the GAAR of ATAD1 was already implemented into domestic legislation, not as a statutory rule that is, but through the doctrine of fraus legis, rendering an explicit codification of the anti abuse concept in the legislation unnecessary. With the proposal to codify the GAAR in the Dutch corporate tax legislation, the Dutch tax legislator follows suit in following-up to the Commission input to do so.

Currently, almost all EU Member States apply a written GAAR in their laws, except for Latvia and – for now – the Netherlands. Latvia does not have a specific GAAR; however, there is a general substance-over-form provision in the Latvian Law on Taxes and Duties.