In our memorandum of September 20, 2016, we informed you about the proposed changes to the way in which profit distributions by cooperatives (in principle not subject to dividend withholding tax) and private limited liability companies (BVs)/public limited companies (NVs) (in principle, subject to tax) are currently treated differently for tax purposes. In his letter of December 16, 2016 the Deputy Minister of Finance addressed the questions raised by the Lower House. His letter is explained below.


In his letter of September 20, 2016 the Deputy Minister outlines the contours of a bill − still be presented to Parliament − amending the Dividend Withholding Tax Act 1965. To prevent improper use, better combat abuse and in light of the State aid risk, the Cabinet firstly intends to make holding cooperatives subject to tax where there is an interest of 5% or more, under the precondition that real cooperative businesses are not affected.

Secondly, the government considers that for business structures it would be best to extend the withholding exemption for participation dividends to cover shareholding structures where the parent company is established in a country with which the Netherlands has concluded a tax treaty. The bill will also include anti-abuse rules. The intention is to hold a public internet consultation on the draft bill before it is presented to the Lower House and then to have it take effect on January 1, 2018 at the latest.

Letter dated December 16, 2016

The Deputy Minister replied to the questions from the Lower House as follows.

  • A holding cooperative will be legally defined as a cooperative whose actual activities primarily (i.e. for 70% or more) consist of the holding of participations or the direct or indirect financing of related entities and individuals.
  • Holding companies will, in principle, be required to deduct dividend withholding tax. However, the withholding obligation for holding cooperatives will only apply to qualifying membership rights, i.e. membership rights that grant an entitlement to at least 5% of the annual profit or to at least 5% of the liquidation dividends.
  • The 5% threshold is based on the own membership right together with the membership rights of individuals or entities related to the member
  • The 5% threshold is also in line with the new term ‘cooperating group’ of Section 10a Corporate Income Tax Act 1969 (which provides for an interest deduction limitation) as included in the 2017 Tax Plan, see our memorandum dated September 20, 2016 (the Upper House will vote on this on December 20, 2016). If, for example, there are two members in a holding cooperative, one of which has a 1% interest and the other a 99% interest, then a withholding obligation applies to both members if they form a cooperating group.
  • With regard to participation dividends distributed in a business structure, both holding cooperatives and companies with share capital will be able to apply a withholding exemption to dividends distributed to a parent company that is established in an EU/EEA Member State or in a country with which the Netherlands has concluded a full-scale tax treaty and if there is no abuse involved.
  • Unlike the current anti-abuse provision, the future anti-abuse provision will no longer focus on the withholding obligation for cooperatives but on the application of the withholding exemption by both companies with share capital and holding cooperatives. International developments surrounding the principal purpose test of the BEPS project will be included in this. The Deputy Minister noted that international developments meant that the current anti-abuse provision needed to be tightened.
  • The intention is that for non-treaty countries dividend withholding tax will be withheld in all cases, i.e. regardless of whether this involves a holding cooperative or a company with share capital. However, the 5% criterion will still apply with regard to the withholding obligation of the holding cooperative. Furthermore, there should also not be a withholding obligation for real cooperative businesses.
  • The proposed measures are also intended to apply to the countries in the Caribbean territory of the Kingdom of the Netherlands and that for these countries the proposed withholding exemption for participation dividends will also be linked to the pending anti-abuse rules.
  • The loss of tax revenue arising from this expansion of the withholding exemption will have to be covered by the business sector itself. This will all be determined when the bill is presented to Parliament.
  • The Deputy Minister confirmed that the Netherlands generally aims at negotiating a 0% dividend withholding tax rate for business structures in tax treaties. If, under national law, a withholding exemption is to apply to participation situations, the rate laid down in a particular tax treaty will no longer be relevant for the Netherlands, as source state, in participation situations. In current and new treaty negotiations, the Netherlands will, however, continue to seek a 0% withholding tax rate on participation dividends in business structures.
  • The Cabinet hopes to start the internet consultation on the bill in the first half of 2017.

Our comments

The introduction of a dividend withholding tax obligation for holding cooperatives is a significant tightening of the current rules. A positive aspect is that a withholding exemption for businesses structures will be included in treaty situations - for both companies with share capital and holding cooperatives - provided there is no abuse. According to the letter of December 16, 2016, this exemption will not however apply to members of a holding cooperative that are not established in a ‘full treaty country’. For distributions to members with an interest of more than 5% in a holding cooperative that is not established in a country with which a full-scale tax treaty has been concluded, 15% dividend withholding tax must be withheld, just as is currently the case for distributions made by companies with share capital to their shareholders. The Deputy Minister’s reference to a ‘full-scale tax treaty’ in his letter of December 16, 2016 means that a treaty that only covers the exchange of information will not qualify for the withholding exemption.

We would like to point out that the draft bill and the details of these rules have not been made public and will probably only become clear during the internet consultation in 2017. However, it is clear that the proposals in their present form are expected to have a significant impact on the use of cooperatives in international structures. We will, of course, keep you informed of latest developments. Feel free to contact your regular contact at Meijburg & Co if you have any questions or comments.

Click here to open the memorandum in pdf-format