Substantial Interest and div tax for Coops

HLB Schippers Accountants Tax & Legal Advisers

Jeroen van der Linden

Amsterdam, April 2013

Programme

1. Substantial interest CIT2. Coop and dividend tax3. Anti-dividend stripping

1. Substantial Interest for Dutch CIT purposes

Corporate income tax subjects

• Residents• Non-residents, such as:

- societies and other legal persons;- taxable limited partnerships (Open CV’s) and other companies not having legal personality of which the equity is divided into shares;- special purpose funds

Taxable object for non-resident taxpayers

• Non-resident taxpayers are taxed on their taxable Dutch amount, which is their Dutch income minus losses.

What is Dutch income?(i.o.w. when are foreign companies subject to tax in the Netherlands)

1. Taxable profit from an enterprise run in the Netherlands (so-called Dutch enterprise)

2. Taxable income from a subtantial interest in a company resident in the Netherlands, if the substantial interest does not form part of the assets of an enterprise

When do you have income from a Dutch enterprise?

• Permanent establishment / representative• Real estate located in the Netherlands• Rights to a share in the profit of the equity of an enterprise• Activities performed as a director or member of an advisory board of a

Dutch resident company• Certain activities on, or above the territorial waters as

well as the oceanlevel and below • Income from receivables held on substantial interest companies

Substantial interest for CIT purposes

• Non-resident taxpayer holds at least 5% of the shares in a Dutch company (e.g. BV, NV or Coop), and

• Shareholding is not attributable to an enterprise of the non-resident taxpayer, and

• non-resident taxpayer holds the shares as main purpose to avoid taxation of someone else’s income tax or dividend tax

Main purpose

• Law says “main purpose” or “one of the main purposes”.

• “Someone else’s” income tax or dividend tax.

Main purposePrivate individual is in NL taxed for:Dividend income (Box 2)Capital gains (Box 2)Interest (Box 1)

A BV B Ltd

Private individualNon-Dutch

Main purposeMain purpose to avoidsomeone else’s income tax?

A BV B Ltd

Private individualNon-Dutch

Private individualNon-DutchHoldco

Cyprus

Main purposeHoldco is in NL taxed for:Dividend incomeCapital gainsInterest

A BV B Ltd

Private individualNon-Dutch

Private individualNon-DutchHoldco

Cyprus

Substantial interest for CIT purposes

• Foreign entity can become subject to tax in the Netherlands for:- Ordinary income (dividends)- Capital gains and- (deemed) interest income

Example 1 Substantial interest

NA NV

NL BV

Dividend

NLBV distributes dividend of 100

NA NV subject to tax in the Netherlands for

Treaties / BRK can decrease the CIT f.i. 8,3% (2011)

CIT 100 x 25%

Example 2 Substantial interest

Cyprus

NL BV

Sale of the shares NL BV may cause Cyprus to become subject to tax in the NL

Example 3

LiechtensteinAG

BV

JerseyLiechtensteinStiftung

1/3 1/3 1/3

Loan

Loan

Loan

Practice

“Not attributable to an enterprise”, means portfolio investment.

When are the shares not held as portfolio investement:

• Management activities?• Risk bearing capital?

• 2. Coop and dividend tax

• If a Coop holds shares in Dutch and non-Dutch companies

• with the main purpose• to avoid someone else’s dividend tax or foreign

(wht) tax and• the membership in the Coop does not belong to

the entreprise of the Coop member,• the Coop will be treated as a limited liability

company for Dutch dividend tax purposes.

• In other words a Coop that functions as holding company may become subject to Dutch dividend withholding tax, if the coop member holds its (≥5%) membership share as a portfolio investment and intends to avoid withholding tax.

Coop

GmbH

Brazil

0%

0% or 15%

Example Coop and dividend tax (1)

• Is Coop held as portfolio investment?

• Main purpose avoiding tax?• 5% or more?

• If a Coop holds shares in Dutch companies• with the main purpose• to avoid someone else’s dividend tax or foreign

(wht) tax,• the Coop will be treated as a limited liability

company for Dutch dividend tax purposes• to the extent the profit distribution does not

exceed the profit reserves of the Dutch companies when acquired.

Coop

NL BV

Brazil

0%

0% or 15%

Example Coop and dividend tax (2)

• Main purpose avoiding tax?• 5% or more?• Does NL• Did BV have profit reserves when

acquired?

Example Coop and dividend tax (3)

• Coop purchased Dutch BV in 2011• Dutch BV has profit reserve of Eu 4 mio• Coop distributes profit to its member in 2012• First Eu 4 mio will be subject to Dutch

dividend tax.

3. Measures to combat dividendstripping

What is dividendstripping?

• Shareholder with• No or limited right for compensation of

dividend tax provides for• Another person to receive the dividend• Who does have the right to set off dividend tax• In the exchange for the equivalent of the

dividend

Example dividendstripping (1)

Private individual abroad

NL NV

3%15% dividendtax

Dividend distribution 28 Dividend tax 3,5 Net 24,5

Sale cum dividend 128Repurchase ex dividend 100Net 28

NL NV

3%

Sale to bank in NL

Dividend

Private individual abroad

Example dividendstripping (2)

Private individual Abroad

NL NV

15% dividendtax

Private individual sells his shares to NL BV and NL BV concludes a putoption. After dividend distribution, BV sells shares back to private individual.

NL NV

Dividend

NL BV

0% dividendtax

Examples dividendstripping

• Sale shares in Dutch listed companies to bank• Lending of shares• Sale and repurchase (call- and putoptions)• Hanging within concern• Intermediate holding company

Example dividendstripping (3)

Example 1

Canada Ltd.

NL BV

10% dividend tax

Canada Ltd.

NL BV

Cyprus Ltd.

0% dividend tax

0% dividend tax

Example dividendstripping (4)

Example 2

NL BV

Belgium Switzerland

15% dividend tax

Malta Ltd.

NL BV

Belgium Switzerland

0% dividend tax

0% dividend tax

Measures against dividendstripping

• Introduction definition beneficial owner• Sanction: reversing reduction or exemption to

national tariff of 15%

When is a person not considered to be a beneficial owner?

• Recipient of dividend performs a service which is a part of several transactions

• in exchange for the income• which income will actually be received by the

holder of the restricted right and• this holder keeps it’s position in the company

NA NV

BV

8,3%

Cyprus Ltd

BV

NA NV

0%

0%

Please note:When sanction then 15% DT

Example dividendstripping (5)

Bonafide cases

• Bonafide purchaser on the stock exchange• Bonafide withholding agent (based on

declaration recipient of dividend)• Durable reorganisation combined with an

ordinary dividend distribution

Durable reorganisation

• Time between reorganisation and dividend distribution

• Type of dividend distribution• Durableness reorganisation

Safe HarbourIn case of durable reorganisation in combinationwith an ordinary dividend distribution irrespective of the time between reorganisation and dividend distribution

NA NV1

COOPNA NV2

NL BV Sale

NV2 looses it’s current participation, consequently no sanction

Example dividendstripping (6)

Questions?

Thank you for your attention.

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