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Blog Fiscalidad Internacional

25 de Julio de 2019

Jaime Salmerón Molina

Tax Manager Benelux & EU Tax Policy en Repsol.

Why “Holland” is not a tax haven (despite all you might have heard before)


Before starting, I would like to speak over the typo at the Heading: how quite often the part and the whole are confused with respect to such country. The Netherlands contains 12 provinces, and 2 of them - the most populated and relevant: North Holland (Amsterdam its capital) and South Holland (The Hague, also containing Rotterdam) meets such name[1].

After such intro, I dive into a topic that many people would qualify as a "tax anathema": how could be possible that the place that is commonly deemed as "THE Tax Haven" (quite often media contains typical sentences as "certain Group were using Holland, which anybody knows that it is a tax haven"; I bet you to take the test!) it is not.

Despite the fact that the mere concept of Tax Haven is all but clear (if you do not trust me, please review OECD work on the so-called "Global Tax Forum on Transparency" or in Europe with the back and forth with the "EU list of non-cooperative jurisdictions"), let´s see through objective statements how such widely spread belief over The Netherlands and taxes can be challenged:

    i) The Netherlands applies a Corporate Income Tax (CIT) with a 25 % tax rate - it has been announced that will be adjusted in the following years to the range of 20% - applying CIT rules that are perfectly comparable with other OECD countries;

    ii) Moreover, the Netherlands applies a method to avoid economic double taxation (the famous "Participation Exemption") that is substantially the same that the one applied in Spain (or even less, with Spanish concepts as "ETVEs");

    iii) The Netherlands usually acts as a leader in setting some new anti-avoidance rules in diverse taxes, rules that afterwards arrive to another tax systems;

    iv) Transfer Pricing rules (following OECD guidelines) apply and are constantly updated; and, y;

    v) Taxation over individuals ranks among the highest in Europe, linked to a wide social welfare system.

Having said the aforementioned, there is a reason that might have created current misbelief, even more with recent scandals that appeared on media: The Netherlands is perfectly aware that cannot compete with other countries in terms of natural resources, population or industrial strength, and that makes that continues with its traditional policy: act as a trade hub[2].

In other words, the Netherlands is known as a country that tends to encourage business activities and international trade. That fact historically had motivated that its tax system has had some features (i.e. no Withholding at source - WHT- on outbound interests and royalties payments) that, in an incorrect use, that made that sometimes the country was involved in international economic flows where funds can end in other jurisdictions, those easier qualified as Tax Havens.

Well, Dutch Government - aware that the existence of certain abuses for people exploiting such "pro-business atmosphere" - has taken two decisions to avoid such risks, by it also reinforcing its compromise with current trends in international tax ("BEPS & beyond"):

    I. As per 2021 such non-existence of WHT at source - interests and royalties- will be limited, as will not apply to payments made to "low-tax jurisdictions" (a "Black List", annually renewed, has been settled, that will also determine application of "CFC" rules, anti-avoidance rule also recently included in Dutch tax law).

    II. Effective July, 1, 2019, a new ruling system is in force, with much more stricter rules to opt to such agreement (in this point, to state that often such rulings just seek to grant legal certain by clarifying applicable rules) and therefore avoid companies operating in The Netherlands for obtaining a tax advantage.

    Here, a new concept ("Economic Nexus") has gained a lot of importance, although it is what in Spain we would call an Undetermined Juridical Concept, that is, an idea that in theory makes perfect sense but its landing into practice creates tons of questions about how it would be applied and, therefore, how taxpayers would be able to apply it.

To sum up, despite all "clichés" that are common, there are facts that make unreal to qualify The Netherlands - one of the founding countries of the actual EU - as a Tax Haven, even more  with current developments to tackle previous loops.

However, now remains practical doubts how such new concept of "Economic Nexus" - that might be a starting point to clarify the typical undetermined concept of economic substance - will be finally defined and practically applied, hoping current doubts would be clarified.

DISCLAIMER: Opinions showed on this or future articles are exclusively attributable to author and in no case cannot be linked to Repsol or any other organization/Company/ forum the author currently belongs or might belong in the future.



[1] Similar case with England and United Kingdom, but in this case the Dutch people themselves are happy using such expression, especially with respect their football national team.

[2] It is know how relevant Amsterdam was to settle stock Exchange markets, and in fact, one of the first "economic bubbles" was located here, trading with something as fragile and perishable as tulips



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