2020 Dutch Budget Adopted - Increased Substance Requirements For Dutch Resident Service Companies As From 2021

On 17 December 2019, the Upper House of Parliament approved the 2020 Dutch Budget proposals (the Budget), the proposals implementing the amended EU Anti-Tax Avoidance Directive to counter hybrid mismatches and the proposals implementing the EU Mandatory Disclosure Directive. Our Tax Flash of 17 September 2019 contains an overview of the main changes for corporate taxpayers.

As announced in our Tax Flash, Dutch resident intragroup service companies will have to comply with increased substance requirements (i.e. from minimum substance requirements to 'relevant substance' requirements) in order to avoid exchange of information with other jurisdictions (see below for more details). It has now been confirmed that the 'relevant substance' requirements will apply as from 1 January 2021.

For the date of entry into force of the other changes, reference is made to our Tax Flash of 17 September 2019.

Current rules for Dutch resident service companies

Currently, Dutch resident companies whose activities in a year predominantly (70% or more) consist of receiving and on-paying interest, royalties, rent or lease amounts to and from group companies based outside the Netherlands and which apply the Dutch tax treaty network or an EU Directive (Service Companies) must meet certain requirements with respect to their substance in the Netherlands, i.e. the minimum substance requirements.

For a year when tax treaty or EU Directive benefits are claimed, Service Companies must confirm in their Dutch corporate income tax return that they meet the minimum substance requirements to avoid spontaneous exchange of information by the Dutch authorities with the relevant tax treaty or EU Directive partner. Such partner country may take this...