Revision of the proposed conditional exit tax of Dutch dividend withholding tax | Deloitte Netherlands

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Revision of the proposed conditional exit tax of Dutch dividend withholding tax

In 2020, a private member’s bill proposing an exit tax of dividend withholding tax was submitted to Dutch Parliament. On 8 December 2021, the new sponsor of the proposal submitted a fourth amendment, proposing substantial changes to the original bill.

21 December 2021

In July 2020, a member of the opposition in the Dutch Parliament submitted a bill to the House of Representatives, proposing the introduction of a conditional exit tax for dividend withholding tax purposes. The aim of this proposal is to preserve the dividend withholding tax claim accrued in the Netherlands. After the opposition member left Parliament in October 2021, the new sponsor of the proposed conditional exit tax submitted a fourth bill of amendment on 8 December 2021, proposing a number of substantial changes. If this revised bill is approved, it would apply retroactively to 09.00 hours, on 8 December 2021.

Subject and scope

The revised bill introduces an exit tax for dividend withholding tax purposes that applies to Dutch tax resident entities undertaking a cross-border reorganization, i.e. a legal merger or demerger, share for share exchange, or transfer of seat to a qualifying state. In this regard, a qualifying state is a state that:

  • is not a Member state of the European Union (EU) or the European Economic Area (EEA); and
  • does not levy a comparable dividend withholding tax or grants a step-up upon entry of the entity, as a result of which the profit reserves of the transferred company qualify as paid-up capital and effectively remain untaxed.

A withholding exemption applies for distributions to portfolio shareholders who are resident in the Netherlands or an EU/EEA member state. Therefore, the exit tax will only be levied on portfolio shareholders in non-EU/EEA states with which the Netherlands has not concluded a Double Tax Treaty that contains a dividend article. Within one month after departure, the company must provide the Dutch Tax Administration with a statement showing the extent to which the conditions of the withholding exemption have been met. Lastly, the exit tax is only applicable to the extent that the profit reserves of the departing company exceed EUR 50 million.

Deemed residence fiction

In addition to the scope as set out above, the proposal includes a fiction that specifically extends the scope of the exit tax in the case of a transfer of seat. Based on that fiction, a company incorporated under foreign law that has had its place of effective management in the Netherlands for at least five consecutive calendar years will be deemed to continue to be a resident in the Netherlands for both corporate income tax and dividend withholding tax purposes for ten years after the transfer of their seat to a qualifying state.

If the effective management of a company incorporated under foreign law is transferred to a qualifying state with which the Netherlands has concluded a Double Tax Treaty, the ability to levy dividend withholding tax after the transfer of the effective management depends on the application of that tax treaty.

Tax system

If the abovementioned requirements are met and the departing company falls within the scope of the conditional exit tax, the company is deemed to have distributed all profit reserves prior to the cross-border reorganization, to the extent these reserves exceed EUR 50 million. The system of the protective additional tax assessment, included in the initial proposal, no longer applies. Instead, the proposed exit tax will be embedded in the existing dividend withholding tax system. Hence, the exit tax due on the deemed dividend distribution must be paid within one month after departure, without the possibility of a tax deferral or waiver. However, the withholding company has a right of recourse against its shareholders. Subsequently, a refund request from an eligible shareholder will only be granted if it can be demonstrated that recovery has taken place.

Next steps

The new sponsor of the proposal intends to forward the revised proposal to the Council of State for advice. In regular legislative processes, the Council of State’s advice accompanies the proposal and is deemed to be an important opinion for Parliament to consider. The plenary hearing in the House of Representatives of the revised initiative proposal has initially been scheduled for the second week of January 2022. However, how other political parties will position themselves regarding this proposal remains unclear to date and, as a result, whether the proposal can win a majority of the votes.

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