International tax is currently undergoing major reforms driven in large part by the OECD’s Base Erosion and Profit Shifting project and the ensuing Two Pillared reform agreed by the members of the OECD/G20 Inclusive Framework. Against the backdrop of ATAD, Pillar One, Pillar Two, and other such terms that have become part of the vocabulary of the corporate taxpayer in recent years, the Budget Plan presented by the Dutch government today may seem rather uneventful. The Budget Plan nevertheless contains several measures that will affect corporate taxpayers that are part of an international group.
Qualification of foreign partnerships
An important development is the codification and partial overhaul of the system by which foreign partnerships are classified as transparent or non-transparent for Dutch tax purposes. Foreign partnerships are currently subject to a comparability assessment in which the qualification of the Dutch legal form that most closely resembles the foreign partnership determines its status under Dutch tax law. As from 2025, this method will be codified in relevant tax statutes and will be supplemented by two rules in case a foreign partnership does not resemble any Dutch legal form. In that case, the partnership will be deemed non-transparent if it is a tax resident of the Netherlands. In case the non-resembling partnership is resident outside of the Netherlands for tax purposes, the qualification in the jurisdiction in which the partnership resides will be decisive. These new rules are particularly relevant to large foreign investors with Dutch operations; to the myriad mostly US-managed investment funds in which large Dutch institutionals invest and to the numerous LLP conducting business in the Netherlands.
In an attempt to crack down on dividend stripping, the Dutch government has, furthermore, proposed several measures that should better equip the Dutch tax authorities in their fight against dividend stripping. Arguably the most important measure is the shift in the burden of proof in demonstrating that a beneficiary qualifies as the beneficial owner of a dividend payment. As from next year, the beneficiary will have to make plausible that they are indeed the beneficial owner of the payment (and are thus entitled to an exemption or refund).
Investment in Dutch real estate through an FII
As from 1 January 2025, fiscal portfolio investment vehicles (i.e., investment vehicles that are subject to a 0% Dutch corporate income tax rate) may no longer directly invest in Dutch real estate. This measure should ensure that income arising from Dutch real estate will no longer remain untaxed in certain cases. It is expected that taxpayers will restructure so as to avoid becoming subject to the regular Dutch corporate income tax rate. To enable such restructurings, the measure will be accompanied by an exemption from Dutch real estate transfer tax in 2024.
Global international tax developments
Apart from the Budget Day proposals that will mostly impact a specific subgroup of taxpayers, perhaps more significant developments have recently come from Brussels and Paris. Last week, the European Commission published a renewed attempt to introduce a common European tax base for large multinationals (“BEFIT”). In addition, the Commission presented plans to enable small and medium enterprises that operate cross-border through permanent establishments in other EU Member States to file a tax return with only one tax administration (“HOT”). The OECD is, meanwhile, finishing work on Amount A and amount B of Pillar One. The latter should ease the way in which the arm’s length principle is applied to in-country baseline marketing and distribution activities. With these developments, the vocabulary of the corporate taxpayer will keep on expanding.