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Business Operations in The Netherlands (Portfolio 7250)

Tax Management Portfolio, Business Operations in The Netherlands, provides detailed information on the major aspects of the Netherlands taxation of both foreign and domestic businesses.

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DESCRIPTION

 

An extensive discussion of income items excluded from the tax base of corporations is provided, including the participation exemption and the exemption for investment companies. Information is also supplied regarding the Netherlands tax treatment of foreign nationals employed in The Netherlands.

Noteworthy characteristics of Netherlands tax law, such as the ability of foreign businesses to hold advance discussions with the Dutch tax administration concerning the tax consequences of their business operations in The Netherlands, are explained. The Portfolio also considers methods used to allocate the profits and costs of foreign corporations operating in The Netherlands through a permanent establishment.

The various taxes on individuals are discussed. The principal direct tax on individuals, including foreign nationals, is the individual income tax. In addition, individuals are subject to a tax on gifts and legacies, and several minor taxes.

The Netherlands is a member of the European Union, all the Member States of which impose a value added tax. This Portfolio analyzes thoroughly the mechanism of the VAT and explains the Netherlands VAT provisions.

Among the nontax matters covered in this Portfolio are the Netherlands company law, the financial and labor situation in the country, and the social security system.


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AUTHORS

Business Operations in The Netherlands was authored by the following experts.
KEES VAN RAAD
Kees van Raad, Master of Laws, University of Leiden, The Netherlands (1969); M.C.L., Georgetown University, Washington D.C. (1970); Doctor of Laws, University of Leiden, The Netherlands (1986); Chairman of the International Tax Center Leiden and Director of the Leiden Adv LLM Program in International Tax Law; of Counsel, Loyens & Loeff; professor of International Tax Law, University of Leiden, The Netherlands; Visiting Professor of Law, University of Florida, USA (1982, 1997, 2003); Universities of Stockholm and Uppsala, Sweden (1987); University of London, UK (1990); Emory University, USA (1991), New York University, USA (1992, 2002, 2004, 2006); Bocconi University, Italy (1993, 1994, 2002); University of California (Hastings College of the Law (1996, 2008)); the Free University of Brussels (1997); University of Sydney (1998, 2005); Xiamen University, China (2004); Peking University (PKU) Law School, China (2005, 2006, 2007); and National Taiwan University (2007, 2008). Associate Judge at the Court of Appeal of ‘s-Hertogenbosch. Recipient of the 1982 Netherlands Biannual Award for Publications on Taxation; Chairman of the Board of the Association of European Tax Professors; author of books and articles on international tax law; and frequent speaker at international conferences, seminars and symposia.

MAARTEN VAN DER WEIJDEN
Maarten van der Weijden, Master of Laws, University of Leiden, The Netherlands (1986); LL.M., New York University, New York, NY (1988). Member of the international tax practice group of Loyens & Loeff, advising clients on Dutch corporate tax on issues in international structuring and restructuring, financial products, and structured finance products. Member of the International Fiscal Association (IFA).

TABLE OF CONTENTS

Detailed Analysis

I. The Netherlands - The Country, Its People and Its Economy

A. Geographical Information

B. Historical Background

C. Political, Legal and Court System

D. The Economy

1. General

2. International Relations and Associations

3. Foreign Trade

II. Business in The Netherlands

A. Foreign Investment Regulation

1. Opportunities

2. Incentives

3. Restrictions

B. Currency and Exchange Controls

1. Netherlands Currency

2. The European Central Bank

3. Exchange Permits

C. Trade and Commerce Regulation

1. Imports and Exports

a. Licenses and Quotas

(1) General

(2) Import Licenses

(3) Export Licenses

b. Custom Duties and Other Levies

(1) General

(2) Import Duties

(3) Excise Duties

(4) Value-Added Tax

(5) Agricultural Levies

2. General Regulation of Business

a. Monopolies and Restrictive Trade Practices

b. Mergers - Merger Code

c. Price Controls

d. Dutch Regulatory Rules and Regulations

(1) Listing on Capital Markets

(2) Issuance of Securities and Investment Firms

(3) Investment Institutions

(4) Redeemable Funds

(5) Savings Certificates Act

3. Intellectual Property Rights in The Netherlands

a. Patents

b. Trademarks

c. Trade Names

d. Designs

e. Industrial Know-How

f. Copyrights

g. Computer Technology

D. Immigration Regulations

1. Residence and Work Permit

2. Residence Permit

3. Entry Visa

E. Financing the Business

1. Financial Institutions

a. The European Central Bank and The Dutch Central Bank

b. Commercial Banks

2. Sources of Finance

a. General

b. Mortgage Banks

c. Debt Contracts

3. Government Financial Aid and Regulation

a. Premiums for Specific Investments

b. Tax Deduction for Small Investments

c. Tax Deduction for Investments in Energy-Friendly and Environmentally-Friendly Products

d. Wages Tax Reduction for Research and Development

e. Promotion of Shipping Industry

f. Additional Premiums

F. Labor Law

1. Labor Relations

2. Labor Recruitment and Dismissal

a. Employment Agreement for a Fixed Period of Time

b. Employment Agreement for an Indefinite Period of Time

(1) Notice of Termination

(2) Court Rescission

(3) Termination for Urgent Cause

(4) Termination During Trial Period

(5) Termination by Mutual Consent

c. Severance Package

d. Mass Lay Off

G. Social Security

1. Introduction

2. Employee Social Security Legislation

a. Disability Insurance Act

b. Work and Income According to the Labor Capacity Act

c. Healthcare Insurance Act

(1) Nominal Premium

(2) Income-dependent Contribution

(3) Healthcare Allowance

d. Unemployment Insurance Act

3. General Social Security Legislation

a. General Old Age Pensions Act

b. General Surviving Relatives Act

c. General Child Benefit Act

d. Disability Assistance Act for Handicapped Young Persons

e. General Act on Extraordinary Medical Expenses

III. Forms of Doing Business in The Netherlands

A. Trade Register

B. Principal Business Entities

1. Sole Proprietorship

2. Limited Liability Company

3. Partnership

4. European Economic Interest Grouping

5. Societas Europaea

a. Incorporation Through Merger

b. Incorporation of a Holding Societas Europaea

c. Incorporation of a Subsidiary Societas Europaea

d. Conversion of a Public Limited Liability Company into a Societas Europaea

6. Branch of a Foreign Company

7. Other Entities

C. Limited Liability Company

1. Introduction

2. Formation

a. General

b. Share Capital

c. Declaration of No Objection

d. Costs of Incorporation

3. Operation

a. Amendment to the Articles of Association

b. Increases and Reductions of Capital

(1) Increases of Capital

(2) Reductions of Capital

c. Acquisition by a Company of Shares in Its Own Capital

d. Corporate Officers - Managing Directors

e. General Meeting of Shareholders

f. Supervisory Board

g. Legal Duties and Legal Liability of Directors and Shareholders

h. Works Councils Act

i. Financial Statements

j. Dividends and Other Distributions of Profits

k. Reserves

4. Legal Merger

5. Liquidation and Dissolution

6. Mergers, Acquisitions, and Conversions

a. Regulation

b. Chapter I of the Merger Code - Public Offers

c. Chapter II of the Merger Code - Prospect of Agreement

d. Conversions

7. Proposed Simplification and Increased Flexibility of BV Law

D. Other Corporate Entities

1. Cooperative Society

2. Joint Ventures

3. Foundations

E. Branch of a Foreign Company

1. Formation

2. Administration

3. Pro Forma Foreign Companies

IV. Taxation - General Remarks

A. Legal Framework

1. General

2. Tax Avoidance and Sham Transactions

B. Administration and Procedure

C. Provision of Information by Taxpayers

D. Investigations

E. Advance Tax Rulings and Advance Pricing Agreements

F. EC Law

1. General

2. Treaty Law

a. Directives

b. Regulations

c. Recommendations

3. EC Court of Justice Decisions

4. Code of Conduct

G. International Assistance in Tax Matters

V. Taxation of Resident Companies

A. Concept of Residence

B. Definition of Company

C. Computation of Tax

D. Accounting Periods, Returns, and Payment of Tax

E. Tax Reporting in Foreign Functional Currency and in Euro

F. Tax Basis

G. Gross Income

H. Items Excluded from Gross Income

1. Participation Income

2. Forgiveness of Indebtedness

3. Gains from Corporate Reorganizations

4. Patents Box and Interest Box

a. Patents Box

b. Interest Box

I. Deductions

1. In General

2. Restrictions

3. Investment Deduction

4. Depreciation

5. Bad Debt Deductions

6. Amortization of Goodwill

7. Inventory Write-Downs

8. Additions to Allowable Reserves

a. Equalization Reserve

b. Reinvestment Reserve

c. Group Finance Company Reserve

9. Pension Plan Contributions

10. Interest, Royalties and Fees

a. In General

b. Nondeductible Interest (and Royalty) Expenses

(1) Hybrid Loans

(2) Anti-base Erosion Provisions

(3) Thin Capitalization Rules

(4) Interest (and Royalty) Payments Made by Conduit Companies

11. Taxes

12. Charitable Contributions

13. Miscellaneous Deductions

14. Net Operating Losses

J. Valuation of Assets

1. Introduction

2. Fixed Assets

3. Inventory

4. Goodwill

5. Debts

6. Securities

7. Patents

8. Participations

K. The Participation Exemption

1. Introduction

2. Participation Exemption Requirements

a. General

b. Participation

c. Ownership

(1) Voting Rights Exception

(2) Affiliation Exception

(3) Drag Along Exception

(4) Transitional Exception

(5) Grandfathering Exception

3. Low-Taxed Passive Subsidiary

a. Introduction

b. Asset Test

c. Tax Burden Test

d. Real Property Subsidiary

e. Intermediate Holding Company

f. The Credit Method

4. Scope of the Exemption

a. General

b. Additional Qualifying Assets: Profit-Sharing Loans, Hybrid Loans and Profit-Sharing Certificates

c. Earn-out Clauses and Balance Sheet Guarantees

d. Expenses Incurred in Acquiring or Disposing of a Participation

e. Foreign Exchange Fluctuations

f. Profits Related to the Trade in Cash Box Companies ("Inventory")

g. Interest on Acquisition Debt

5. Valuation of Participations, Partitioning Doctrine and Controlled Foreign Company Rules

a. General

b. Partitioning Doctrine

c. Mark-to-Market Valuation for Low-Taxed Passive Subsidiaries

6. Bad Debt Deduction with Respect to Parent Loans

7. Permanent Establishment Converted into a Subsidiary

8. Liquidation of a Participation

a. General

b. Restriction Where the Liquidated Subsidiary Is an Intermediate Holding Company

c. Restriction Where the Operating Loss of Liquidated Company May Be Used by Another Company

d. Restriction When Business Carried on by Liquidated Company Continues to Be Carried on Within Group

L. Gains from Reorganizations

1. Introduction

2. Statutory Merger

3. Statutory Division and Split-off

4. Exchange of Assets for Stock

a. General

b. Qualifying Exchange (Approval of Minister of Finance Not Required)

c. Exchange with Approval of Tax Inspector

5. Gains from the Exchange of Stock for Stock

M. Tax Consolidation

1. Introduction

2. Requirements

3. Application

N. Investment Companies

1. Introduction

2. Investment Company (Fiscale Beleggingsinstelling)

3. Exempt Investment Company

4. Foreign Withholding Tax

O. Advance Rulings

1. General

2. Ruling Policy

3. New Ruling Policy

a. General

b. Advance Pricing Agreements

c. Advance Tax Rulings

d. Financial Services Companies

e. The Ministry of Finance's View on Determination of Transfer Prices

f. Principle of Good Faith Governing Relationships Between Treaty Partners

g. Other Decrees

P. Reallocation of Income Between Related Companies

1. Transfer Pricing Documentation Requirements

2. Audits

3. Domestic Reallocation

4. International Reallocation

5. Arbitration Convention

VI. Taxation of Nonresident Corporations

A. Nonresidence

B. Taxable Income Under Dutch Domestic Tax Law

1. Introduction

2. Income Derived Through a Dutch Permanent Establishment

a. General

b. Interest and Royalties Paid

c. Dividends, Interest and Royalties Received

d. Losses

3. Other Items of Taxable Income

C. Impact of Tax Treaties

D. Dual Residence

VII. Income Taxation of Resident Individuals

A. General

1. Introduction

2. Residence

3. Foreign Employees Working Temporarily in The Netherlands

B. Resident Taxpayers

1. Tax Returns

2. Gross Income

a. Introduction

(1) Box I

(2) Box II

(3) Box III

b. Box I: Business Income and Employment Income

(1) Income

(a) Pensions

(b) Company Car

(c) Stock Option Rights

(d) Rental Value of Owner-occupied Residence

(e) Annuities

(2) Deductions

(a) Deductions with Respect to Business Income

(b) Deductions with Respect to Employment Income

(c) Expenses with Respect to Rental Value of Self-Owned Residence

(d) Life Insurance Premiums

(e) Personal Deductions

c. Box II: Income from, and Capital Gains Derived from the Disposal of, "Substantial Interest"

d. Box III: Income from Savings and Portfolio Investment

3. Tax Credits

4. Wages Tax

VIII. Nonresident Taxpayers

A. In General

B. Wages Tax

C. Residents of Member States of the European Union or the European Economic Area or of Tax Treaty Countries

IX. Other Taxes on Individuals

A. Gift Tax

B. Inheritance Tax

1. Introduction

2. Taxable Objects

3. Tax Rates

4. Nonresidents

5. Double Taxation

C. Net Wealth Tax

X. Other Taxes on Companies and Individuals

A. Dividend Tax

1. General

2. Dividends

3. Dividend Stripping and Beneficial Ownership

4. Dividend Taxation After a Stock-for-Stock Exchange, Legal Merger or Legal Division

a. Stock-for-Stock Exchange

b. Legal Merger and Legal Division

5. Tax Free Repurchase of Own Shares by Quoted Companies

6. Procedure

7. Rate

8. Effect of EC Parent-Subsidiary Directive

a. Introduction

b. No Dividend Withholding Imposed on Subsidiary Company

c. Participation Exemption for Parent Company

9. Refund Facility

10. Branch Profits Tax

11. Dividend Taxation and Corporate Emigration

12. Impact of Decisions of EC Court of Justice

B. Tax on Legal Transactions

1. Real Property Transfer Tax

a. In General

b. Acquisition of a Participation in a Dutch Real Estate Fund

2. Insurance Tax

3. Capital Tax

C. Value Added Tax

1. History

2. Mechanism

3. Taxable Persons

4. Bases of Taxation

a. Supply of Goods and Services

b. Place of Delivery and Supply of Services

5. Exemptions

6. Right to Deduct Input Value Added Tax

7. Special Arrangements for Small Businesses (Individuals) and Agricultural Sector

8. Tax Rates

9. Value Added Tax System in the European Union

10. Tax Returns and Assessments

D. Special Registration Tax on Luxury Cars, Motorcycles and Vans

E. Real Property Tax

XI. Avoidance of International Double Taxation

A. Introduction

B. Unilateral Relief

1. General

2. (Proportional) Tax Exemption

a. Operational Rules

b. Subject-to-Foreign-Income-Tax Requirement

c. Special Finance Company Rules

3. Business Income

a. Introduction

b. Concept of Permanent Establishment

4. Income from Foreign Real Property

5. Income from Employment Abroad

6. Dividends, Interest and Royalties from Abroad

7. Inheritance Tax and Gift Tax

C. Relief Under Double Taxation Conventions

1. General

2. Dutch Tax Treaty Policy

3. Avoidance of Double Taxation

a. Persons Entitled to Treaty Protection

b. Treaty Application Where Foreign Entity Is Nontransparent

c. Categories of Foreign Income to Which Relief Applies

d. Method of Relief

4. Details of Important Treaties

a. Tax Agreement with Netherlands Antilles and Aruba

b. Netherlands-United States Tax Treaty

c. 1986 Netherlands-Canada Tax Treaty

D. Estate and Gift Taxes


WORKING PAPERS

Working Papers

Table of Worksheets

Worksheet 1 Corporation Income Tax Return - Nonresident Companies

Worksheet 2 Application for Partial Relief at Source from, or Refund of, Netherlands Dividend Tax

Worksheet 3 List of Comprehensive Double Taxation Agreements and Related Protocols Signed by The Netherlands as of February 1, 2009

Worksheet 4 Table of Withholding Tax Rates

Worksheet 5 1992 Netherlands-United States Income Tax Treaty as amended by 1993 and 2004 Protocols

Worksheet 6 1969 Netherlands-United States Estate and Inheritance Tax Treaty

Bibliography

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