The Netherlands, a Tax Haven? No! A Gateway to Europe (and beyond)

This article was written by Diederik Hauser, Ruben van Aarle and Sam Abbing of Taxperience.

The Netherlands has some potentially beneficial features in the core of its tax system which make it a gateway to Europe and beyond, particularly, as an ideal international holding company.

Introduction

There has been heightened sensitivity to tax havens, more so recently, but clearly over the past few years – likely augmented by the recent collapse of the Cypriot banking system. The Netherlands was also incorrectly referred to as a tax haven by President Obama (which was quickly corrected).

The Netherlands is not a tax haven at all. For its small size, it has a strong manufacturing base, and is a well-established global banking and financial center. Due to its seaport location, it is also an excellent shipping entry and exit point for goods to and from Europe. The statutory corporate income tax rate is 25% and tax holidays or other special regimes are not available.

Some of the more salient features of the Dutch tax system are as follows which can make it an ideal international holding company:

  • The Dutch participation exemption;
  • Low withholding tax rates; and
  • Ruling practice.

Dutch Participation Exemption

Using a Dutch holding company in a European or Global structure potentially provides the following:

  • No Dutch tax on foreign (distributed) profits;
  • No Dutch capital gains tax on a future disposal of a foreign investment; and
  • A blocker from U.S. taxation is created, thereby allowing for the tax efficient use of cash generated overseas for further foreign expansion.

Low Withholding Tax Rates

In its domestic tax law, the Netherlands does not levy withholding taxes on interest, royalties and technical service fees. The Netherlands has concluded over 90 double tax treaties that reduce or eliminate foreign (i.e., non-Dutch) withholding tax rates on these types of items. Multinational companies have used the Netherlands to reduce or eliminate withholding taxes using back-to-back structures.

The general domestic Dutch withholding tax rate on dividends is 15%. This may be reduced (mostly to 5% or 0%) under double tax treaties concluded by the Netherlands or under the EU Parent/Subsidiary directive (to 0%) for distributions to or from European companies. Therefore, the Netherlands can be used to reduce or eliminate foreign withholding taxes and, in certain instances, Dutch companies can distribute dividends to the U.S. free of Dutch withholding tax under the U.S./Dutch tax treaty.

Ruling Practice

Taxpayers can obtain a relatively high degree of tax certainty through Advance Tax Rulings and Advance Pricing Agreements in the Netherlands. These rulings are fairly common to obtain in the Netherlands, and they are generally not as complicated, costly, or as potentially adversarial to obtain when compared to the U.S. tax ruling system.

In summary, the Netherlands is very well suited as an International/European Holding company or headquarters for multinationals.