Cooperatives and Dutch dividend withholding tax

Currently, there is a difference in the treatment for Dutch dividend withholding tax purposes of a cooperative (coöperatie) on the one hand and a public or private limited liability company (or another company with capital divided into shares) on the other hand. A profit distribution made by a cooperative is generally exempt from divided withholding tax, except in cases of abuse (as defined in Dutch tax law). A profit distribution made by a public or private limited liability company is generally subject to dividend withholding tax at a rate of 15%, although an exemption from, or reduction in or refund of, dividend withholding tax may be available under the Netherlands’ double tax treaty network or the EU Parent Subsidiary directive.

According to the Dutch State Secretary of Finance, there is no sound reason for treating a cooperative differently from a public or private limited liability company. As a result, on 20 September 2016 the Dutch State Secretary of Finance sent a letter to parliament in which he proposed to remove this difference in tax treatment. The Dutch State Secretary of Finance will seek comments on this proposal from the (international) business and tax professionals before putting a legislative proposal before parliament.

The letter proposes to introduce a new rule under which a profit distribution made by a so-called ‘holding cooperative’ (broadly a cooperative whose activities comprise holding participations or portfolio investments in or financing of related companies) to a member with a stake of 5% or more, will become subject to Dutch dividend withholding at a rate of 15%. However, an exemption from Dutch dividend withholding tax will be introduced where the relevant member of the cooperative is a resident of the EU or of a country which has concluded a double tax treaty with the Netherlands, provided there is no abuse (broadly, where there is an active business). This is in line with the starting point that profit distribution up the chain in active business structures should not be hindered by the levy of withholding tax.

The letter in addition suggests that an exemption from Dutch dividend withholding tax will also be introduced for a profit distribution made by a public or private limited liability company to a shareholder with a 5% or greater shareholding, if the relevant shareholder is a resident of a country which has concluded a double tax treaty with the Netherlands and provided there is no abuse. As a result, the exemption from Dutch dividend withholding tax will be extended to a profit distribution made by a public or private limited liability company to a 5% shareholder resident in a country which has concluded a double tax treaty with the Netherlands.

Comments

There is, in our view, room for different interpretation as to what precisely the Dutch State Secretary of Finance is proposing in the letter. Accordingly, we would advise that businesses potentially affected should await the detailed legislative proposal before any conclusion should be drawn from this letter. Furthermore, general elections will be held in March 2017 and the outcome of the general elections may have an impact on the exact terms of the legislation.

The letter states that any proposed changes are not intended to become effective before 01 January 2018. Accordingly, there should be sufficient time to anticipate any changes to Dutch dividend withholding tax affecting holding company structures in the Netherlands which involve a cooperative.