In June, the Dutch State Secretary of Finance announced five new resolutions in which he aims to provide more insight into the procedure concerning Advance Tax Rulings (ATR) and Advance Pricing Agreements (APA). Following is a short overview of these new resolutions.
Procedure for Requesting Advance Pricing Agreements in Cross-Border Intercompany Transactions (DGB 2014/3098)
In the new Resolution regarding the APA procedure, companies are required to direct their APA requests to the competent tax inspector and send a copy to the Dutch tax authorities’ APA team, which is located in Rotterdam. In the old resolution, the taxpayer was only required to send the APA request to the competent tax inspector.
Procedure for Requesting Advance Tax Rulings (DGB 2014/3099)
In the new resolution, companies have to direct their ATR requests to the competent tax inspector and send a copy to the Dutch tax authorities’ APA/ATR team, which is located in Rotterdam. In the old resolution the tax inspector was required to send a copy to the APA/ATR team; from now on, this obligation comes to the taxpayer. Furthermore, the Dutch tax authorities’ APA/ATR team is now competent to decide (on behalf of the competent authorities) on requests for the application of the Limitation on Benefits (LOB) tax treaty provision in bilateral situations to prevent double (non) taxation.
Financial Service Companies and Advance Certainty (DGB 2014/3101)
When a financial service company does not have enough substance in the Netherlands or does not run real risks for the company’s transactions, the company will not be eligible to obtain an APA/ATR. In addition, for transactions in which the company does not run real risks, the company cannot apply foreign withholding tax deductions. Furthermore, when a financial service company that does not have sufficient substance in the Netherlands applies for an APA, the Dutch tax authorities will automatically exchange information regarding this APA with the tax authorities of the involved jurisdictions.
Question and Answer Resolution in Respect of Resolution DGB 2014/3099 and DGB 2014/3101 (DGB 2014/3102)
This resolution intends to clarify the application of the above resolutions (in light of financial service companies) based on questions from professional tax service providers and companies. Below are some relevant examples.
Questions with regard to substance:
- Will the directors, who are resident in the Netherlands, have enough professional knowledge when they are only qualified to perform daily administrative duties?
- Answer: No. the professional knowledge needs to be of a higher standard. They need to have the professional skills for the legal handling of transactions, managing financial transactions, and executing transactions.
- How will the appropriate capital be determined?
- Answer: The appropriate capital will be determined based on the facts and circumstances. Although financial service companies only perform intercompany activities, it may be required to comply with the Basel accords in regard of capital requirements.
Organization and Competence-Arrangement (DGB 2014/296M)
This resolution defines the competences of the Dutch tax authorities’ APA/ATR team with respect to the above resolutions. Furthermore, this resolution describes the competences of the Contact Potential Foreign Investors (CPFI) team, which is a part of the Dutch tax authorities.
All of the above resolutions are effective June 13, 2014.
Based on the above, existing structures involving financial service companies may need to be reviewed to avoid potential adverse tax consequences. If you need any help or more information regarding the new APA/ATR resolutions, Ryan International Transfer Pricing professionals are available to provide you with more details and how it may affect your organization.