Dutch government shares its view on CJEU Danish cases

As a result of the recent CJEU Danish cases, Members of the Lower House of the Dutch Parliament raised questions in regard to the perspective of the Government hereto, and more specifically the position of the Dutch Tax Authorities (DTA).


18 Jun. '19
Yoran Noij

The questions mainly concern the interaction between the landmark CJEU judgements in six cases which deal with the application of the EC Parent-Subsidiary Directive and the EC Interest and Royalty Directive (see also our Blog on this subject) and the substance requirements according to Dutch legislative. The current substance requirements are (in short) that the holding company (i) has to incur at least EUR 100,000 in salary expenses in relation to the intermediary holding activities, and (ii) must have and use its own office space (at its disposal for at least 24 months). For a more complete outset of the Dutch substance requirements we refer to our Blog on this subject.

Perspective of the Dutch Government

First and foremost the State Secretary mentions that a foreign intermediate holding company that in view of all relevant facts and circumstances at first glance complies with the aforementioned objective substance requirements, does not necessarily dictate that the structure is not abusive and dividend withholding taxes (WHT) do not apply.

In this regard the State Secretary announced that he will propose legislation amending the substance requirements. In short the proposal provides for the possibility of counterproof for the DTA, even if the relevant substance criteria are met. The legislative amendments will enter into force as from January 1, 2020 and would similarly apply to the Dutch non-resident corporate tax rules. Hence, non-resident intermediate holding companies that rely on meeting the relevant substance criteria should evaluate their structure whether they are at risk of being challenged by the DTA in future events.

Next to the proposed amendments as mentioned above, the State Secretary considers the WHT exemption’s anti-abuse rule (in general) compatible with the indicia presented in the Danish cases. The State Secretary anticipates that the proposed amendments would not lead to material differences as compared to the existing situation.

Currently, satisfying the ‘relevant substance’ criteria functions as safe harbour for foreign intermediate holding companies in business structures. In this regard it should be noted that the State Secretary underlines the importance that in order to satisfy the objective criteria the incurred salary expenses of EUR 100,000 have to be relevant to the exploited activities as an intermediate holding company.

This refers to the more qualitative substantiation of substance. For example, in the CJEU Danish case C-118/16, X Sweden (holding company of X Denmark A/S), receiving an interest payment of EUR 196 mio, was not solely engaged in financing activities. The company also took on responsibilities in connection with product registration with public authorities and various administrative duties in connection with clinical trials. X Sweden employed around 10 employees. Observing the facts as presented in the court case we suspect that part of the argument that X Sweden is merely a conduit company, and not the beneficial owner, is that the employees are suspected to be merely involved with the product registration / administrative activities. In this context the product registration / administrative employees were not assumed to be relevant for the exploited activities to hold / finance loans to subsidiary companies (i.e. safeguarding a EUR 500 mio loan / 196 mio interest payment).

As a result of the proposed amendments of the possibility for the DTA to counterproof the existence of relevant substance, despite the facts that the objective substance criteria are met, we presume that the burden of proof in this context is also going to play a role. The proposed legislative amendments will be published on September 17, 2019 (Prinsjesdag).

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Yoran Noij

Yoran is a tax adviser and Master student Tax Law at Tilburg University

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