Unrelated to the changes in the Dutch participation exemption effective 1/1/2007, there have been a number of substantial developments in the area of the Dutch hybid partnership rules. The Dutch Ministry of Finance saw fit to publish a so-called Resolution on this subject in order to guide both tax payers and tax inspectorates on how to deal with foreign cooperation formats which are not easily comparable to their Dutch counterparts.
A Resolution is in fact an interpreatation of the tax rules by the tax authorities, which they publish, so everyone may rely thereon. The tax authorities are bound, the tax payer is not. In most cases, tax payers will follow the Resolution however, since deviating from it may well result in having to defend one’s views in a tax court.
The Netherlands tax authorities are rather strict in interpreting foreign cooperation models on a formal basis only, by comparing them to the cooperation models available under Dutch civil law. This approach may well lead to mismatches between the Dutch and the foreign tax views. The ”foreign partnerships tax classification” Resolution which the Ministry of Finance has put on its website and which is regularly updated, is relatively easy to work with. It is not only a guideline to the tax authorities but also a tax planning tool as it shows you which foreign partnerships are potentially hybrid, in case you need one…
Again, this may either lead to double taxation or to double non-taxation and anyone who uses a JV entity in an international cooperation model will want to know what his tax position is. Needless to say that we will assist our clients, first in avoiding the double taxation threats and second in looking for a double non-taxation opportunity along the way. And we have found a few……. Our ”new Dutch notional interest deduction” described elsewhere in this website is the most recent example and a very powerful tax planning tool.
It remains to be seen whether or not BEPS will alter this tax planning opportunity. We will therefore constantly monitor the BEPS developments. Also this item will be part of the BEPS ”package deal” expected in November 2015. No country will want to take the risk of giving up a tool that may attract investors, without getting something back in another of the 15 BEPS items.