Since January 1, 2022, the Netherlands has been applying regulations to prevent double taxation in cases of Transfer Pricing mismatches. According to Article 8bd of the Corporate Income Tax Act, when assets or liabilities are transferred within a group (through contributions, mergers, or spin-offs), the beneficiary’s taxable base cannot exceed (in assets) or be less than (in liabilities) the transferor’s tax return.
It raised significant questions: What happens when these assets are subject to a participation exemption regime in another country? Could the full exemption apply, or would the rules against mismatches limit it?
Binding Positions of the Tax Authority
Resolution of March 17, 2025
The Dutch Tax Administration (DTA) clarified that the participation exemption may be applied in full, even if the tax base of the participation has been adjusted for intra-group price mismatches.
Position of August 20 and Conclusive Approach
Additionally, it was clarified that if the transfer of the shareholding is subject to a foreign regime operating as an objective and automatic exemption, the anti-mismatch rules will not apply. In other words, in such cases, the Dutch participation exemption will not be limited.
Both clarifications are binding on Dutch tax inspectors, providing certainty to the legal and regulatory framework.
Strategic Implications
- Increased certainty for cross-border transactions: Dutch affiliates can apply foreign exemption regimes without being restricted by domestic regulations.
- Consistency with international standards: It aligns with the goal of avoiding undesirable tax results without hindering competitiveness or duplicating taxes.
- Enhanced opportunities for efficient tax structuring: Multinationals can plan restructurings, including mergers, spin-offs, or contributions, with confidence that foreign participation exemptions will be upheld.
- Regulatory complement to double non-taxation: This approach supports a comprehensive view of tax compliance and global tax governance.
Complementary Overview of the Dutch Regime
The participation exemption regime in the Netherlands exempts up to 100% of dividends and capital gains obtained from a participation from corporate income tax, as long as conditions such as owning at least 5% of the share capital, the participation not being solely passive, and the underlying asset being taxed at an effective rate of at least 10% are met.
These provisions are part of a broader regulatory development that includes Transfer Pricing documentation (master file, local file, country-by-country report), anti-base erosion rules, and controlled foreign corporation rules.
Conclusion
The recent clarifications from the Dutch tax authority mark a significant advancement by defining how foreign participation exemption regimes interact with domestic Transfer Pricing regulations. This enhances international tax planning and offers greater legal certainty for companies engaged in complex cross-border operations.
Source: LoyensLoeff