The Dutch government plans to introduce a withholding tax on dividends paid to low-tax jurisdictions starting in 2024.
The tax would be applied on payments to countries with a corporate tax rate of less than 9% and those on a European Union blacklist, the government said in a statement on Friday.
The proposed plan is part of the Netherlands’ effort to shed its reputation as a conduit country, used by multinationals to avoid corporate tax. Starting in 2021, the Netherlands will levy a conditional withholding tax on interest and royalty payments to low-tax jurisdictions.
The Dutch government faces international pressure “to really tackle tax evasion and not serve any longer as a middle man through which all kinds of money streams to low tax jurisdictions are channeled,” said Rene van Eldonk, partner and country head for the Netherlands at Simmons and Simmons in Amsterdam.
The Netherlands already has a 15% withholding tax on dividends, which the government tried to dismantle in 2018 before changing its position after getting strong opposition.
The new dividend withholding measure will apply even if the low-tax countries have a tax treaty with the Netherlands, the statement said. Generally, bilateral income tax treaties lower withholding tax rates on dividend payments, or exempt the payments from withholding tax.
It’s not clear how the new dividend withholding tax measure could override agreements made in bilateral treaties on dividend withholding tax, van Eldonk said.
The measure announced Friday “looks like an alteration of the present withholding tax on dividends,” meant to apply where dividends paid to low-tax jurisdictions aren’t already being taxed, said Arnold Merkies, coordinator of Tax Justice Network in the Netherlands. But it isn’t yet clear which situations the newly announced dividend withholding tax would apply to, he said.
The government said it “intends to devise” the dividend measure before its term ends in March 2021.
In the near term, the statement Friday creates uncertainty for companies, and there will likely be pressure on the government to announce more details on the plan in the coming weeks, van Eldonk said.
Targeting Flows to Tax Havens
In 2018, 37 billion euros in interest, royalty, or dividend payments flowed through the country to low-tax jurisdictions, the government statement said.
“This additional withholding tax represents another major step in our fight against tax avoidance,” State Secretary for Finance Hans Vijlbrief said in the statement. “Financial flows channelled from or through the Netherlands to another country where they are not or not sufficiently taxed, will soon no longer go untaxed.”
The withholding taxes on interest and royalties and dividends target tax-driven flows of money to tax havens, said Bart Le Blanc, a partner at Norton Rose Fulbright LLP in Amsterdam. That “should cover most of the ‘passive’ flows of money to tax havens,” though not other flows, like services, he said.
Shareholders in low-tax jurisdictions that could previously rely on a treaty to exempt them from a withholding tax on dividends would be affected, Le Blanc said.
The government is also considering a “source state tax” to ensure developing countries receive more tax revenue, the statement said. Under an agreement with the Netherlands, a developing country would be able to levy the tax when a Dutch person performs technical services, like a management or consultancy job, rather than having the Netherlands taxing it. Under current tax treaties, that service would be taxed by the Netherlands, the statement said.