Due to severe pressure from the EU (anti harmful tax competition measures), the Netherlands has introduced new rules per 1/1/2002 in order to limit the use of Dutch royalty and interest conduit vehicles by multinational groups and by artists and sportsmen, an international tax planning feature which has been existing in the Netherlands for many tens of years. Due to a lenient transition rule, most tax payers could postpone adhering to the new rules till 31/12/2005. As from 1/1/2006 all Dutch conduit companies which receive interest or royalties from or pay such income to affilliates, must adhere to the new rules.
The new rules can briefly be described as follows:
Dutch legal entities which are related to either the payor or the recipient of their royalty or interest income or to both, without sufficient legal and/or economic substance in the Netherlands will no longer be able to reduce foreign interest or royalty withholding taxes;
Upon request of a residency certificate, or filing a corporate tax return which discloses the conduit function, these entities will be audited by the Dutch tax authorities. If they do not meet the new requirements, or if in doubt, the Dutch tax authorities will unilaterally inform the foreign tax authorities in the countries of the interest or royalty payor(s) that the Dutch entity is likely not the beneficial owner the interest or royalties it receives, so they should not allow for a reduction of withholding taxes on royalty payments to this Dutch entity.
Our conduit solution is not subject to the new rules. The tax authorities, when rewriting them in 2001, restricted the new article 8c CITA to related party transactions. The new rules have therefore not only allowed us to continue offering our solutions, but have added considerable additional financial benefits, since our companies will never be ‘related’ to the payor or recipient of the moneyflows.