State Secretary answers questions about cooperatives’ obligation to deduct dividend withholding tax
Responding to House of Representatives questions, the State Secretary provides clarification about how to interpret the tax deduction obligation for holding company cooperatives. A public consultation will be arranged in the first half of 2017.
22 December 2016
Budget Day letter
Unlike NVs/BVs, cooperatives are basically exempted from dividend withholding tax. The State Secretary points out the rise in the use of cooperatives in international structures, which has triggered an examination into the various ways in which these legal structures are treated. On Budget Day, the State Secretary presented an initial solution to eliminate the difference in treatment between cooperatives and NVs/BVs. Responding to House of Representatives questions, the State Secretary has now provided a more detailed explanation of this solution.
The State Secretary’s suggestion in the Budget Day letter is to impose on holding company cooperatives the obligation to deduct dividend withholding tax, by putting holding company cooperatives on a par with capital companies. The government also considers it desirable to extend the withholding exemption for intercompany dividends in business structures to intercompany set ups in which the parent company has its registered office in a country with which the Netherlands has concluded a tax treaty. The proposal includes a precondition to prevent the actual cooperative business community from being affected by the bill.
Responding to House of Representatives questions, the State Secretary has now more extensively discussed the scope of application of the new tax deduction obligation for holding company cooperatives. The idea is to define a holding company cooperative as a cooperative in which at least 70% of the actual activities comprise the holding of participations or the direct or indirect financing of affiliated entities and persons. The tax deduction obligation is to apply to qualifying membership rights, i.e., the shareholdings in holding company cooperatives should be at least 5%. Implementation of a regulation on providing evidence to the contrary as regards the qualification as holding company cooperative is unlikely.
A provision will be included according to which a member can have a qualifying membership right with affiliated persons or entities, too. This should prevent the 5% threshold from being used to set up structures. What’s more, it aligns with the new term “cooperating group,” which was recently introduced in the profit shifting legislation (article 10a CITA 1969).
The government had initially contemplated on imposing on cooperatives the full obligation to deduct dividend withholding tax, after which an exception would be created for real cooperatives. This option was ultimately dropped, since defining a holding company cooperative turned out to be easier. As an additional benefit, real cooperatives will not have to prove they meet the conditions to qualify for the exception to the main rule. Considering the budgetary loss resulting from abolition of the dividend withholding tax, some EUR 1.6 billion, the State Secretary thinks this is unlikely to happen.
The goal is to make the bill available for an internet consultation in the first half of 2017. The government will thus avail itself of the possibility to ask open questions as regards any legislative choices still to be made. Anyone is entitled to respond. The government’s objective is to have the measures be effective as from January 1, 2018.
Source: Responses to a written consultation on cooperatives and dividend withholding tax, 2016D40734