Canadian multinational companies may be affected by new corporate tax measures announced in the Netherlands' 2017 budget on September 20, 2016.
The budget modifies some existing corporate tax measures, and introduces new refund rules for dividend withholding tax, among other changes. Many of the proposed measures will take effect on January 1, 2017.
Corporate tax measures
The budget makes changes to some interest deduction limitations to refocus the "debt push down" rules, prevent the seven-year reduction period for maximum financing for transfers from being restarted and to tighten the transitional rules.
The budget also extends the low 20% corporate tax rate bracket to companies with income of €350,000 (from €200,000) by 2021.
Dividend withholding tax
The budget proposes to allow non-resident individuals and non-resident entities with Dutch shares to request a refund of dividend withholding tax. A refund may be possible where the dividend withholding tax exceeds the personal or corporate income tax that would have been payable had the individual or the entity been a resident of the Netherlands. However, dividend withholding tax refunds will not be granted if the individual or the entity is entitled to a full credit of the Dutch tax in their state of residence or state of establishment by, for example, a tax treaty. This change is based on recent court decisions that ruled that levying dividend withholding tax in certain circumstances can be contrary to the free movement of capital.
The budget also proposes to allow a dividend withholding tax exemption for entities that are not subject to corporate income tax (such as pension funds), as long as the entity meets certain conditions. In line with EU law, this exemption will also apply to qualifying foreign entities.
The Netherlands also announced in a letter released along with the budget that it intends to expand the Dutch dividend withholding tax rules to apply to Dutch cooperatives used in holding structures. In addition, the letter says that the Netherlands intends to abolish Dutch dividend withholding tax in certain situations (i.e., introduce an exemption for tax treaty jurisdictions that applies to both companies and co-ops). Draft legislation for these changes has not yet been released.
For more information, contact your KPMG adviser.
Information is current to October 11, 2016. The information contained in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's National Tax Centre at 416.777.8500