Measures for international situations

Settlement relating to CFC measure
The supplementary ‘controlled foreign companies’ (CFC) measure is aimed against transferring profits to low-tax states. Under certain conditions, this measure allows for settlement of the foreign profit tax of CFC bodies. The foreign tax to be settled will be calculated separately for each body. Sometimes the whole amount cannot be settled and some of it has to be postponed. The law does not specify the order in which the settlement should then take place. This has now been regulated: the tax amounts are taken into account from small to large. If the amounts are equal, then a proportional amount of each will be taken into account.

International tax avoidance

‘Reverse hybrid entities’ are partnerships that are not independently liable for tax in the country of establishment, but are designated as independently liable for tax by the state in which an affiliated participant is established. These entities become fully liable for tax in the Netherlands if they are established in the Netherlands (or if the partnership has been established here). If the profit is taxed directly at a participant in a state that considers such entity to be transparent, a deduction item is provided for.

There will now be supplements that provide for an adjustment to measures in the income tax, corporation tax, dividend tax and withholding tax structures. There will also be a few adjustments, with reference to the aggregation of interests of affiliated entities to assess whether there is a reverse hybrid entity. 

• Take note! The tax liability measure had previously been implemented, but with a postponed effective date of
  1 January 2022.

Permanent establishment and withholding tax  
The government wants to expand the concept of permanent establishment for withholding tax on interest and royalty payments. According to the accompanying letter of the tax plans, the Withholding Tax Act 2021 (Wet bronbelasting 2021) will be amended accordingly. The expanded concept already applies to corporation tax. The expansion will also result in withholding tax being levied on interest and royalty payments to the extent that they are attributable to specific Dutch sources, such as property in the Netherlands. 

Clarification on hybrid withholding tax provisions
In the accompanying letter to the tax plans, the government announces a technical amendment to the Withholding Tax Act 2021. The hybrid provisions will be clarified. As a result, hybrid entities will no longer be liable for the withholding tax if a minimum of at least one of the underlying beneficiaries (whether or not through a collaborative group) does not have a qualifying interest in the hybrid entity. This amendment will have retroactive effect from 1 January 2021.

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