Global Tax Alert | 16 January 2014

New Dutch Decree on substance requirements enters into force

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As of 1 January 2014, a new Decree1 entered into force which codifies the existing administrative guidance on substance requirements for companies engaged in intercompany financing and/or licensing activities. Dutch companies that claim the benefits of a tax treaty or EU Directive (treaty benefits) should now declare in their annual Dutch corporate income tax return whether or not the tax payer meets a defined set of substance requirements. If one or more of these requirements are not met and the company has claimed the benefits of a tax treaty, the Dutch tax authorities will notify the foreign tax authorities. This will be a very simple notification. It is up to the foreign tax authorities to take action regarding this notification.

The substance requirements to be met by these companies are similar to the substance requirements already applicable since 2001 for Dutch companies electing to obtain certainty in advance from the Dutch tax authorities in the form of an Advance Pricing Agreement (APA) or an Advance Tax Ruling (ATR). In the meantime, the Dutch standard for substance requirements has also been embraced by other countries and has been incorporated into their respective tax practices.

The new rules will be applicable for fiscal years starting as of 1 January 2014 and the substance requirements should be met on a continuous basis. Most taxpayers are already familiar with these rules since compliance with these rules is already required under the existing ruling practice and also considered best practice for non-ruling entities.

Scope of the new rules

The scope of the new rules is limited to a specific group of Dutch corporate income taxpayers. Compliance is only required by Dutch corporate income taxpayers:

  • Who are mainly (which is more than 70%) engaged in intercompany financing and/or licensing activities (or activities generating similar income, such as rental or leasing income);2,3
  • Who have received or accrued interest and/or royalty income (or similar income) from foreign group companies; and
  • For which treaty benefits are claimed.

List of substance requirements

If a taxpayer falls within the scope of the new rules, the following substance requirements should be met in the Netherlands by the Dutch taxpayer in order to prevent exchange of information:

  • At least 50% of the statutory (and competent) directors of the Dutch company should be residents of the Netherlands;
  • The Dutch resident directors have the required professional knowledge to perform their duties satisfactorily. The directors should exercise their own discretionary authority with respect to the conclusion of transactions entered into by the entity, and should take responsibility for the proper implementation of such transactions;
  • The taxpayer should have qualified personnel at its disposal to fulfil and administer the transactions entered into by the entity diligently;
  • Decisions of the board of directors must be taken in the Netherlands;
  • The most important bank account(s) of the tax payer must be maintained in the Netherlands;
  • Bookkeeping of the taxpayer must be carried out in the Netherlands;
  • The taxpayer should have its registered address in the Netherlands;
  • The taxpayer should, to its knowledge, not be regarded by another country as its resident;
  • The taxpayer should bear genuine economic risk in relation to its financing, licensing, rental or leasing transactions; and
  • The entity should have sufficient equity (considering its assets and operating risks).

Consequences of not meeting the substance requirements

If a company does not satisfy the substance requirements mentioned above continuously throughout the year, while claiming tax treaty benefits, the taxpayer is obligated to report this in its annual Dutch corporate income tax return. The taxpayer should include which requirement is not met and should provide information allowing the Dutch tax authorities to make a proper assessment. Furthermore an overview should be submitted to the Dutch tax authorities of the interest, royalty (and similar income) received for which treaty benefits are claimed.

The above rules are subject to a penalty provision. In case of premeditation or gross negligence, a maximum penalty of €19,500 may be imposed.

If the Dutch tax authorities conclude that the substance requirements are not met, they will spontaneously notify the foreign tax authorities. It is the common understanding that the information to be submitted to the foreign tax authorities is (initially) very limited.

It is up to the foreign tax authorities to decide what to do with this notification. They may e.g., request additional information or may choose to ignore the notification.

Requirements for companies that wish to obtain an APA

A special category is formed by Dutch companies that have obtained a new APA (concluded as of 1 January 2014) with respect to these type of intra group activities, and are part of a corporate group that does not have or plan to have any other business activities in the Netherlands. With respect to APAs obtained by these companies, as of 2014, a spontaneous exchange of information will take place, even if these companies satisfy all the substance requirements. The notification will only state that the company has obtained an APA in the Netherlands. Although such an exchange of information may not be preferred, the fact that the Dutch tax authorities provide this information to other countries also shows that the Dutch tax authorities have willingly entered into an APA with the company and as such have analyzed the activities and transfer pricing documentation and that, according to the Dutch tax authorities, this company is in compliance with the Dutch substance rules. A separate Decree is expected shortly for this category of companies with an APA.


Taxpayers who fall under the scope of these new rules need to review carefully whether all substance requirements are satisfied.

The substance requirements listed above should be met on a continuous basis. Consequently, it is critical to carefully review ongoing compliance with each requirement. As a general rule, it is expected that some simple changes to the operating protocols will in most cases be sufficient to comply with even a strict reading of the rules.

Taxpayers should review the impact of this new guidance on their operations with the assistance of local tax professionals.


1. Decree of 18 December 2013, Stb. 569, 2013, published on 30 December 2013.

2. Whether a company's main activity consists of financing and/or licensing activities is among others based on:

(i) Composition of assets and liabilities;

(ii) Composition of the turn-over;

(iii) Actual activities undertaken by the tax payer; and

(iv) Time allocation of the employees.

3. Activities relating to the holding of shares in subsidiaries are to be disregarded for this 70% test.

For additional information with respect to this Alert, please contact the following:

Ernst & Young Belastingadviseurs LLP, ITS, Amsterdam
  • Johan van den Bos, ITS
    +31 88 407 1457
  • Helmar Klink, ITS
    +31 88 407 1731
  • Simone Admiraal, ITS
    +31 88 407 1242
  • Eric Westerburgen, ITS
    +31 88 407 2310
  • Roderik Rademakers, ITS
    +31 88 407 1601
  • Reinout Kok, ITS
    +31 88 407 8505
  • Danny Oosterhoff, TP & OME
    +31 88 407 1007
Ernst & Young Belastingadviseurs LLP, ITS, Rotterdam
  • Michiel Swets, ITS
    +31 88 407 8517
  • Marc de Louw, ITS
    +31 88 407 8490
  • Ronald van den Brekel, TP & OME
    +31 88 407 9016
  • Willem van Beekhoff, TP & OME
    +31 88 407 8519
Ernst & Young LLP, Belgium-Netherlands Tax Desk, New York
  • Dirk Stalenhoef
    +1 212 773 3390
Ernst & Young LLP, Belgium-Netherlands Tax Desk, Chicago
  • Frank Schoon
    +1 312 879 5508
Ernst & Young (China) Advisory Limited, Belgium-Netherlands Tax Desk, Shanghai
  • Bas Leenders
    +86 137 0199 4869
Ernst & Young LLP, Dutch Tax Desk, London
  • Jelger Buitelaar
    +44 20 795 15648

EYG no. CM4109