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Netherlands-Dutch Holding Company Not "Merely a Conduit," Says Canadian Court by John Wonfor (BOO Dunwoody LLP) P

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Netherlands-Dutch Holding Company Not WorldTrade Executive, Inc. Practical European www.wtexec.com/tax.html The International Business Information Tax Strategies Source™ REPoRT ON TAX PLANNING FOR INTERNATIONAL COMPANIES OPERATING IN EUROPE May 2008 Volume 10, Number 5 Articles Planning Perspective International Tax Structuring Using Dutch Cooperatives: Absence of Withholding Tax Makes Structure Attractive as a Holding Company By Joseph B. Darby III, Thomas van der Vliet (Greenberg Traurig LLP) and Shane Kiggen (Ernst & Young) p. 2 EU--EU Cross-Border Loss Relief-No Big Surprise: Comments to the Judgment in the "Lidl Belgium" Case By Dr. Ingmar Doerr (Lovells LLP) p. 3 Commission Challenges Taxation of Dividends in Four Member States By Geert Dierickx (McDermott Will & Emery/Stanbrook LLP) p. 7 8elgium--VAT on the Supply of Land By Samir Haouari and Veerle cousse« (KPMG) p. 4 France.-Eurozone Rejects French Proposals to Cut Fuel Tax By Daniel Kelly (McDermott Will & Emery/Stanbrook LLP) .. p. 9 Fe Germany-Draft German Tax Act 2009 By Klaus Eicker (Ernst & Young) p. 5 Netherlands-Dutch Holding Company Not "Merely a Conduit," Says Canadian Court By John Wonfor (BOO Dunwoody LLP) p. 6 www.wtexec.com/ets.html NETHERLANDS Planning Perspective International Tax Structuring Using Dutch Cooperatives Absence of Withholding Tax Makes Structure Attractive as a Holding Company By Joseph B. Darby III, Thomas VAN DER Vliet (Greenberg Traurig LLP) AND Shane Kiggen (Ernst & Young) Introduction from Dutch withholding tax. There is a famous Dutch proverb that states, "The This article will begin with an overview of the key art is not in making money, but in keeping it." To help legal and tax attributes of Dutch cooperatives. The article achieve this laudable goal, the Dutch have thoughtfully will then describe how the cooperative holding company provided a Dutch cooperative holding structure that al- structure can provide greater tax efficiency than its lows multinational enterprises and private equity funds predecessor, the BV holding company structure. Finally, to keep a significantly greater after-tax share of the money the article will review some of the advantageous uses to they make. Cooperatives have been a business form used in The Netherlands has both a the Netherlands for well over a century,' However, only recently have tax lawyers fully begun to exploit this famously favorable tax regime and a distinctive vehicle in international tax planning. What vast treaty network. makes a cooperative exciting to tax planners is its unique treatment under the Dutch dividend withholding tax. Unlike its close relatives, the Dutch private or public which Dutch holding companies have traditionally been company (BV/ NV),2 a cooperative is not subject to the put, and describe how these uses may be achieved using 15 percent withholding tax on dividend distributions," the Dutch cooperative holding company structure. The absence of a levy of dividend withholding tax makes the cooperative a logical choice as a holding company. Legal Attributes of a Dutch Cooperative-Not Your In conjunction with the Netherlands' extensive treaty Father's BV network, a cooperative holding structure generally permits The Dutch cooperative has a unique and interesting foreign members of a cooperative to repatriate profits free heritage. However, its legal attributes are, in most respects, fairly prosaic. Like a Dutch limited liability company Joseph B. "Jay" Darby III ([email protected]) IS A (BV/NV), a cooperative is incorporated under notarial Shareholder AT THE Boston OFFICE OF Greenberg Traurig LLP, deed. However, unlike a Dutch limited liability company, CONCENTRATING HIS PRACTICE IN THE AREAS OF TAX law, CORPORATE a statement of no objections' need not be obtained from TRANSACTIONS AND INTELLECTUAL property. He IS A LECTURER AT the Ministry of Justice before the deed can be executed. LAW IN THE Graduate Tax Program AT Boston University The notarial deed contains the cooperative's articles Law School AND AN ADJUNCT PROFESSOR AT Bentley College of association, which include a clause stating that the IN THE Masters IN Taxation Program, TEACHING COURSES AT object of the cooperative is to provide for certain material BOTH SCHOOLS THAT INCLUDE Taxation OF Intellectual Property needs of its members pursuant to agreements concluded AND Tax Aspects OF Buying AND Selling A Business. He IS between and among them. At least two members are A MEMBER OF Tax Strategies' Advisory Board, AND WINNER required to incorporate a cooperative; thereafter, however, OF THE "Tax Writer OF THE Year-2007" Award. Thomas VAN a cooperative can continue to validly exist with just one DER Vliet ([email protected]) IS AN Associate IN THE member. Amsterdam AND New York OFFICES OF Greenberg Traurig. Once created, a cooperative has "legal personality," His PRACTICE IS FOCUSED ON INTERNATIONAL TAX planning, meaning it has an identity separate from that of its INCLUDING TAX MINIMIZATION OF cross-border M&A PROJECTS members. As such, it can conclude contracts, and sue and AND CORPORATE restructurings. Shane Kiggen WILL BE STARTING be sued in its own name. There are no restrictions on how WITH THE New York OFFICE OF Ernst & Young AS A Senior the cooperative chooses to address the issue of member Associate IN September, WHERE HE WILL FOCUS ON TAX ASPECTS liability; member liability can be unlimited, limited, or OF MERGERS AND acquisitions. He IS A RECENT GRADUATE FROM excluded, provided that the name of the cooperative Boston University's LLM PROGRAM IN International Tax. Dutch Cooperatives, continued on page 10 2 Practical European Tax Strategies@ May 2008 NETHERLANDS only if the portfolio investment company is subject to (from page 2) Dutch Cooperatives tax at a rate of 10 percent or more on a taxable base that resembles the base applicable to resident companies or if includes the appropriate suffix indicating the nature of its the portfolio investment company owns real estate that limitations on liability" Furthermore, there are generally equals or exceeds in (fair market) value 90 percent of its no restrictions concerning the nature of activities that a total asset value. cooperative can undertake. For instance, like a limited liability company, a cooperative is permitted to act as Withholding Taxes a finance company or an intellectual property conduit The Netherlands does not impose withholding tax on company;" either inbound or outbound royalty or interest payments. Cooperatives are not designed to have volatile Both limited liability companies and cooperatives have memberships. Technically, a member in a cooperative exploited this important tax rule to their advantage. usually may not transfer his or her interest to another The Netherlands does, however, impose withholding party. However, unless the Articles provide otherwise, tax on dividend distributions. Article 1, section 1 of the there are no restrictions on the ability of current members Netherlands' Dividend Withholding Tax Act of 1965 to surrender their membership interest or on the ability of provides that a dividend withholding tax shall apply to third parties to become members. Typically, each member any company whose capital is wholly or partially divided has the right to cast one vote. However, the articles of into shares. Under Dutch law, a limited liability company association may grant greater voting power to certain is both a "company" and has capital divided into shares. members. Generally, there are no restrictions as to the type Therefore, it is required to withhold tax from dividend of entities that may become members in a cooperative. distributions to its shareholders at the current withholding Unlike other popular Dutch business entities, such as tax rate of 15 percent. However, since a cooperative is neither classified as a "company" nor classified as an entity with its capital In conjunction with the Netherlands' divided into shares, profit distributions from a cooperative extensive treaty network, a cooperative to its members are not subject to the Dutch dividends withholding tax.10 As discussed below, the absence of holding structure generally permits withholding on dividends makes the Dutch cooperative foreign members of a cooperative a valuable tool in variety of tax-planning structures. to repatriate profits free from Dutch Taxation of Foreign Members withholding tax. A foreign person is subject to Dutch income tax to the extent that person receives income from a Dutch source. As a general rule, foreign members of a Dutch cooperative the limited liability company, there are no minimum capital are considered to have income from a Dutch source in requirements. Importantly, a cooperative does not have the event that their interest constitutes a "substantial capital divided into shares. Instead, "contributions" are interest,'?' Dutch tax law provides that a member's interest credited to the contributing member's account. Profits are in a cooperative is "substantial" if that member either is shared in accordance with the balance of each member's entitled to 5 percent of the cooperative's profits or to 5 account at the end of the fiscal year. percent of the cooperative's liquidation distributions or enjoys a right to exercise at least 5 percent of the votes in Tax Attributes of a Dutch Cooperative the general meeting of the cooperative's members. Corporate Income Tax On the surface, these "substantial interest" rules For corporate income tax purposes, a cooperative is appear to make a Dutch cooperative an unattractive vehicle taxed much like a Dutch limited liability company (BV / for foreign ownership interests that exceed the 5 percent NY). Both are subject to Dutch corporate income tax at threshold. However, both treaty law and Dutch domestic the current rate of 25.5 percent/ and the income base on law may provide a foreign member of a Dutch cooperative which the tax is imposed is roughly similan" Furthermore, with relief from these rules. The Netherlands has concluded like the limited liability company, a cooperative is eligible more than 80 tax treaties, many of which reserve the right to partake in the all-important "participation exemption" to tax a person in that person's country of residence.
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