Tax insurance as an alternative to rulings
BY STAFFAN BOS
Stricter Dutch ruling practice
On 22 November 2018, the Dutch State Secretary of Finance announced that the procedure in relation to rulings with an international character is going to be tightened. The draft decree has now been published and the changes are expected to take effect as of 1 July 2019.
To date, the Dutch tax ruling practice had been considered as a somewhat taxpayer friendly and efficient process. The proposed changes are likely to decrease the availability of rulings, increase overall disclosure requirements, and could increase cost generally.
The changes are likely to trigger an increased demand for tax insurance solutions, which can be quicker, better streamlined and more affordable compared to the expected new ruling process.
Scope of the new ruling practice: the new ruling procedure will apply to all rulings with international aspects, namely, advance pricing agreements (APAs) and advance tax rulings (ATRs) granted as from 1 July 2019.
Stricter requirements:
Economic nexus requirement: In order to obtain a ruling, taxpayers must have sufficient “economic nexus” with the Netherlands. They will need to demonstrate that they actually carry out operational activities in the Netherlands and employ a sufficient number of personnel (proportional to the total personnel of the group).
Motives for ruling application: the decisive motive for requesting a ruling must not be to obtain a tax advantage, either Dutch or foreign.
Exclusion of transactions involving certain foreign taxpayers: taxpayers requesting a ruling must not be directly involved in transactions with taxpayers located in non-cooperative jurisdictions or low-tax jurisdiction (i.e. an effective corporate tax rate lower than 9%).
Tax insurance as an alternative
Following the implementation of the revised ruling practice, the Dutch tax authorities will become stricter regarding transfer pricing methodologies and international tax arrangements. Tax insurance can be considered as an alternative to certain arrangements for which APAs or ATRs will no longer be available. Tax insurance could also be an alternative to a lengthy ruling procedure which does not match deal timelines.
Insurance is not suitable for highly aggressive structures for which a ruling was never a possibility. However, situations which are on the “right side of the law” while falling short of the above requirements, could be considered for insurance. If you are interested to know more, please contact Sammy Shihab or Staffan Bos
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