Dear FS professional,

This issue of our newsletter contains our regular update of recent developments within the Financial Services sector. This month we have included an update on the coalition plans to abolish dividend withholding tax for remittance deduction and to no longer allow fiscal investment institutions to directly invest in property.

We also include an update on the 2018 FATCA/CRS filing deadlines and the court case in which it was ruled that a Sondervermögen is transparent from a Dutch tax perspective and therefore is, in principle, not eligible to reclaim dividend withholding tax, but due to several facts and circumstances the refund request must be regarded as having been filed by the Sparkasse.

Lastly, we would like to wish you and your family happy holidays!

If you would like to know more about the matters addressed in this newsletter please contact us.

Niels Groothuizen,
Partner, Financial Services Tax Group

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Table of Contents

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1. SIRA developments: Dutch Central Bank expects banks to perform a client check in relation to the Paradise Papers

On 29 November the Dutch Central Bank (DNB) issued its monthly Banking Newsletter. In this month’s newsletter DNB states that it expects banks to cross-check their relations with the Paradise Papers database that was made public by the International Consortium of Investigative Journalists (ICIJ) and to do additional research for each hit.

In that case a bank is expected to investigate why a relation is mentioned in the database, in what context and which consequences this has for the service the bank provides to that relation. DNB requests the bank to report hits and the outcome of additional investigation to the supervisor.

This request should be viewed against the background of SIRA and the requirement for banks to establish a tax risk appetite and develop a monitoring system with respect to (the impact on integrity risks of) tax aggressiveness of their clients.

Meijburg & Co can help financial institutions establishing their tax risk appetite and can educate account managers on tax aggressiveness.

For more information please contact Niels Groothuizen.

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2. Coalition agreement and consequences of proposal to abolish dividend withhold tax for remittance deduction

On October 10, 2017, the new Dutch government presented the coalition agreement. One of the proposed tax measures is the abolition of dividend withholding tax (except for payments to tax havens or in anti-abuse situations) as of January 1, 2020.

The abolition of dividend withholding tax may adversely affect fiscal investment institutions (fiscale beleggingsinstellingen). An entity with the fiscal investment institution status is subject to a 0% corporate income tax rate, provided several conditions are met. One of these conditions stipulates that the direct investment income must be distributed by the following year at the latest (i.e. within eight months after the end of the financial year). Currently, this dividend distribution is, in principle, subject to 15% dividend withholding tax.

However, a fiscal investment institution may apply the remittance reduction (afdrachtvermindering). The remittance reduction means that a fiscal investment institution does not have to remit (all) the dividend withholding tax withheld on its dividend distributions to the tax authorities, but may deduct the withholding tax withheld on its own (dividend and interest) income. Under this regime, a fiscal investment institution ‘passes on’ the withholding tax incurred on its investments to its investors. As Dutch resident investors can offset or reclaim the dividend withholding tax withheld by the fiscal investment institution in their tax return, with the remittance reduction withholding taxes may not lead to a tax burden.

Abolishing dividend withholding tax means that the remittance reduction will no longer apply. This may have an adverse effect on the yield of the fiscal investment institution (compared to direct investments). At this stage, no measures have been announced to mitigate this effect.

Meijburg & Co is working with the Dutch asset management industry and the Ministry of Finance to find a solution.

If you would like to know more about this matter, please contact Jennifer Evers.

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3. New Dutch government to no longer allow fiscal investment institutions to directly invest in property

On October 10, 2017, the new Dutch government presented the coalition agreement. One of the proposed tax measures is to no longer allow fiscal investment institutions (fiscale beleggingsinstellingen) to directly invest in property. This measure is expected to take effect as of January 1, 2020.

An entity with the fiscal investment institution status is subject to a 0% corporate income tax rate, provided several conditions are met. One of these conditions stipulates that the direct investment income must be distributed by the following year at the latest (i.e. within eight months of after the end of the financial year). This dividend distribution is, in principle, subject to 15% dividend withholding tax. The coalition agreement also proposes abolishing dividend withholding tax. Without such a tax, the Netherlands would effectively not tax Dutch real estate owned by non-residents via a fiscal investment institution. This was the reason given for excluding directly held real estate investments by fiscal investment institutions.

The proposed changes will have a substantial impact on Dutch real estate funds with the status of fiscal investment institution. At this stage, no transitional measures (e.g. for real estate transfer tax purposes) have been announced to facilitate fund restructurings.

If you would like to know more about this matter, please contact Jennifer Evers.

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4. Notice from the Dutch Tax and Customs Administration regarding 2018 FATCA/CRS filing deadlines

On October 11, 2017, the Dutch Tax and Customs Administration announced the following extensions of the 2018 reporting deadlines for returns relating to FATCA and CRS regimes:

  • For Financial Institutions (FIs) that are only subject to FATCA and/or CRS reporting regimes, the deadline has been extended to August 1, 2018.
  • For FIs with investment products (including FATCA and CRS) and loan products that are also subject to the other Dutch domestic reporting regimes, the deadline has been extended to February 6, 2018.
  • For FIs with payment and savings products (including FATCA and CRS), the deadline has been extended to May 1, 2018.

 For any questions on FATCA and CRS, please contact one of the following Meijburg & Co FATCA/CRS team members: Michèle van der Zande, Jenny Tom or Jip Lieverse.

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5. Letter from the Dutch Deputy Minister of Finance regarding US TIN/SSNs

The Dutch Deputy Minister of Finance announced that the IRS had issued a notice regarding US Taxpayer Identification Numbers or Social Security Numbers (TIN/SSN) on September 25, 2017. The notice states that a foreign financial institution will not be in a significant non-compliance position until 2020, if a TIN or SSN is the only information missing from the reports for pre-existing accounts, provided that the FIs have taken sufficient steps to obtain this number and report it. Please refer to the FATCA Letter (in Dutch) for an explanation as to when this is deemed to be the case.

For any questions on FATCA and CRS, please contact one of the following Meijburg & Co FATCA/CRS team members: Michèle van der Zande, Jenny Tom or Jip Lieverse.

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6. The ‘s-Hertogenbosch Court of Appeals renders judgment in a case concerning a German legal entity under public law which - investing through a German special investment fund without legal personality - received Dutch-sourced portfolio dividends that were subject to withholding tax

The ‘s-Hertogenbosch Court of Appeals rendered judgment in a case concerning a German legal entity under public law (Sparkasse) which - investing through a German special investment fund (Spezial-Sondervermögen) without legal personality - received Dutch-sourced portfolio dividends that were subject to withholding tax. The fund filed a refund request based on Article 63 of the Treaty on the Functioning of the EU (TFEU), in which it reclaimed the dividend withholding tax withheld during the years 2006 to 2008. The tax inspector refused the refund.

The conditions for such a refund include a condition stipulating that the beneficiary of the dividend is not subject to a profit/income tax and that - had it been a tax resident of the Netherlands - it would not have been subject to Dutch corporate income tax.

The Court of Appeals ruled that the Sondervermögen is transparent from a Dutch tax perspective, and therefore is, in principle, not entitled to file such requests, but due to several facts and circumstances, the reclaim request must be regarded as having been filed by the Sparkasse. According to this line of reasoning, the criteria for the withholding tax refund are to be applied to the Sparkasse, which the Court of Appeals ruled was comparable to a Dutch legal entity under public law. Under Dutch tax law applying during the years 2006 through 2008, such a public-law company was - regardless of its banking activities - not subject to corporate income tax. The refund should thus be granted.

However, the tax inspector took the position that, were the refund to be granted, the Dutch subjective exemption from corporate income tax for public legal entities constitutes illegal State aid (Article 108(3) TFEU); this based on the fact that in such cases the exemption’s scope presumably extends to cover foreign companies which – had they been a resident of the Netherlands – would have qualified as entities subject to corporate income tax. As the Dutch tax rules regarding public legal entities were already in place when the Netherlands joined the EU in 1958, they are grandfathered for State aid purposes. This grandfathering applies as long as the rules have not changed significantly. According to the tax inspector, the rules have indeed changed, as a German Sparkasse was not able to successfully reclaim Dutch withholding tax before 1990; in that year the EU rules regarding the free movement of capital took effect. The question arises whether a change in EU rules in 1990 can change the ‘existing aid’ status of a domestic rule into ‘new aid’. The ‘s Hertogenbosch Court of Appeals has asked the Court of Justice of the European Union for a preliminary ruling on this.

If you would like to know more about this topic, please contact Robert van der Jagt.

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