In our opinion the guidance still leaves significant arguments open for debate. In addition it remains to be questioned whether the amended (or modified) guidance on Sec. 50d para. 3 German ITA leaves sufficient arguments for companies to provide evidence that the mere holding of assets does not de facto imply the existence of a wholly artificial arrangement that does not reflect economic reality (as clarified in Deister Holding and Juhler Holding). We expect an increase of Sec. 50d para 3 ITA decisions in particular observing the increased attention to cross-border transfer pricing disputes in relation to Germany. It should be noted that typically cross-border transfer pricing adjustment (vis-à-vis shareholders) in Germany imply the recognition of deemed dividend distributions, which are likewise taxed in accordance with Sec. 50d para. 3 ITA.
From a conceptual point of view the Deister Holding and Juhler Holding decisions might also influence the recently (January 1, 2018) extended Netherlands substance requirements. To obtain an exemption from dividend withholding tax foreign intermediate holding companies (among other requirements) need to satisfy a number of additional substance requirements: employment costs of at least EUR 100,000 (dependent upon the domestic price level) in relation to its intermediary holding functions should be available, the employees must have the professional knowledge and capacity to be able to properly perform their duties and the holding company should have office space at its disposal (for at least 24 months) from which the intermediary holding functions are being undertaken. Last week the Dutch Lower House of the Dutch Parliament has acknowledged that these (extended) requirements do not take into account the scale and nature of the (worldwide) activities of enterprises. Hence, the Lower House has resolved a motion requesting the government to take into account the scale and nature of activities in applying the extended substance requirements. We question however if these requirements, even after the amendments which need to be made based on the resolution of the Lower House, are compatible with ECJ law.
