The reasons that were given for this are:
1) This involves a taxpayer trying to obtain certainty, although the application of the law follows directly from public law sources (Administrative Tax law Decree dated May 9, 2017, no. 2017-1209, section 3.1).
Meijburg & Co observation: essentially this states that if there is no uncertainty, there is no reason to request certainty from the tax authorities. This implies that both the Financial Institutions Department of the tax office in Amsterdam as well as the ATR team at the tax office in Rotterdam are of the opinion that the elements on which advance certainty is requested are not uncertain so that advance certainty is not necessary.
2) The function of the securitization entity (the Notes Issuer) is merely to hold collateral.
The parties to this securitization will therefore only pay a small fee for this minor function.
There can be no uncertainty about this.
Meijburg & Co observation: uncertainty remains about the amount of the fee but, based on past ruling practice and on experience with many transactions in practice, an annual fee of EUR 2,500 should be sufficient.
3) The Notes and debentures to be issued have a maturity date of less than 50 years.
There is thus no ambiguity about their qualification (under Supreme Court case law, debt instruments with a maturity of less than 50 years cannot be requalified into equity instruments for taxpayers).
Meijburg & Co observation: this safeguards that the interest on the Notes and debentures is in principle deductible for Dutch corporate income tax purposes and is not subject to withholding tax. Note should be taken of the fact that the Dutch government has announced plans to introduce a withholding tax in 2021 in respect of the interest paid to tax havens or in artificial situations.
4) The securitization entity is not a “beneficial owner”.
There can also be no uncertainty about this, because the securitization entity is merely the holder of collateral (see bilateral treaties and the 2001 Decree on the Avoidance of Double Taxation).
Meijburg & Co observation: the relevance of being the beneficial owner of the cash flows (such as the interest on mortgage receivables or dividends on equities) generally lies in the application of tax treaties (in order to be eligible for a reduction of withholding taxes under a tax treaty, the recipient must generally be the beneficial owner of the interest or dividends). Under Dutch case law, the legal owner of certain cash flows is in principle regarded as the beneficial owner, unless the legal owner is merely an agent or nominee. Under the common “autopilot” mechanisms that are used in securitization transactions, the legal owner is not an agent or nominee from a legal perspective, but economically under a substance over form approach it is uncertain whether the SPV owning the assets and issuing the Notes can be regarded as the beneficial owner. For Dutch domestic transactions (such as RMBS) this is generally not relevant, but if a Dutch SPV owns non-Dutch assets (such as in CDO/CLO transactions) this may become relevant. It is important to note that the comment on beneficial ownership is an opinion expressed by the tax authorities and not binding on the taxpayer.
In a standard Dutch (RMBS) transaction, the above also implies that the sale of the assets (the mortgage receivables) to the Issuer is (still) tax neutral (upon our request also confirmed by the Amsterdam tax office).
5) The foundation (Stichting) holding the shares in the securitization entity cannot carry on a business as a result of this shareholding.
There can also be no ambiguity about this, because the securitization entity cannot itself carry on a business (it is merely the holder of collateral).
Meijburg & Co observation: Dutch foundations are only subject to corporate income tax to the extent they carry on a business, whereas BVs (Dutch limited liability companies) are always subject to corporate income tax. This statement seems to open the way to using a foundation as Issuer, because this implies that the Issuer is no longer required to earn a fee.
6) The holding of the Notes and debentures does not give rise to a Dutch permanent establishment for the bond and debenture holders.
That too does not produce any uncertainty.
For there to be a permanent establishment there must be a business, and Notes and debentures do not qualify as a business (Section 17(3) Corporate Income Tax Act 1969).
Meijburg & Co observation: the implication here is that this also applies to profit participating debt instruments, but given that the tax authorities refer to “standard” securitizations (with a Deferred Purchase Price as profit extraction mechanism) we would not want to read too much into this.
7) Furthermore, the Deputy Minister has indicated that he no longer wishes to provide certainty for vehicles without substance (payroll < EUR 100,000 and office space < 24 months).
Securitization entities have neither staff nor office space and it is likely that they will soon no longer be able to obtain certainty for that reason.
Meijburg & Co observation: this statement most likely relates to developments in the international tax arena and is associated with the OECD Base Erosion and Profit Shifting (BEPS) project. Under the BEPS initiative, a Principal Purpose Test will be introduced into many tax treaties. The Netherlands has already introduced legislation that requires more substance for foreign investors in the Netherlands, and is planning to introduce these rules for Dutch taxpayers as well. Providing advance certainty to taxpayers in a purely Dutch domestic context would create an unwanted precedent for cross-border structures.
The usual procedure is to submit a request for certainty with the Client Coordinator for the entity involved, who will assess the request based on a number of factors, including the stipulation that preliminary consultation, as outlined in section 3 of the Administrative Tax Law Decree, must take place.
Meijburg & Co observation: essentially requests for certainty have to be submitted from now on to the local tax inspector, who will monitor whether the request is for a standard transaction or whether there are indeed uncertain elements for which advance certainty is available.
Should you have any questions on the above, please contact Niels Groothuizen.