The Netherlands recently proposed amendments to the Dutch Dividend Withholding Tax (DWT) Act. The new legislation came into effect on 1 January 2018 and includes changes to the dividend withholding tax treatment of COOPs.
Under the current legislation, there are differences in the DWT rules applicable to the international holding structures that use Dutch Cooperatives (COOPs) as the holding entity at Dutch level and, for example, those applicable when a Dutch BV is the holding entity. The change in the legislation looks to eliminate this difference.
In principle, dividend distributions made by any Dutch COOP will be subject to DWT. However, distributions by a Dutch COOP that does not qualify as a Holding COOP should remain exempt from the tax. A Holding COOP is defined as a COOP that is part of an international holding structure and predominantly (more than 70%) performs holding activities and/or intercompany financing activities1.
The changes and impact
All Holding COOPS will be impacted but the biggest impact will potentially be on private equity funds and other holding structures that hold their foreign investments through a Holding COOP in the Netherlands, while the COOP is owned by an entity in a non-tax treaty jurisdiction (for example Cayman Islands, BVI, Bermuda, etc.). Distributions made from such Holding COOP shall become subject to 15% DWT effective 1 January 2018, unless action is taken immediately.
Are there other options?
For holding structures in which a member of the Holding COOP cannot fulfil the requirement to avoid the new taxation – if for example the member is registered in Cayman or Bermuda - a viable alternative may be to hold the COOP through a Curacao company or to replace the Holding COOP with a Curacao holding company. Curacao has a tax arrangement with the Netherlands and does not levy DWT on distributions from Curacao. If the Curacao holding company fulfils the substance requirements, the DWT can be avoided in the Netherlands. Each case needs to be carefully evaluated.
Last October the Dutch Government issued a Policy Paper – outlining its policies for the next four years - and introduced plans to eliminate the 15% DWT on dividend distributions. However, dividend distributions in abusive situations and to low-tax jurisdictions would still be subject to the 15% DWT. This reaffirms the viability of Curacao for holding entities established in jurisdictions designated as low-tax jurisdictions from a Dutch tax perspective.
It is still unclear what amendments will be made to the DWT following the issued Policy Paper and how the beforementioned relates to the changes previously announced. At this stage, it is recommendable to review the existing cooperative-structures.
Get expert help
Curacao has a long-standing history as a financial centre and the professional environment to cope with international structuring. The country also has a skilful and multilingual work force, as well as an advantageous legal and accounting environment, combined with a reliable infrastructure.
Footnote
[1] Specific exemptions could apply with respect of being a Holding COOP.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
