Master Thesis International Business Taxation The Netherlands: Tax Haven on Earth? An Analysis of Key Characteristics of the Dutch Corporate Tax System Inssaf Maatougui Supervisor – Dr. Carla de Pietro Academic Year 2016 – 2017 Tilburg University Tilburg School of Law Master thesis International Business Taxation Track: International Business Tax Law The Netherlands: Tax Haven on Earth? An Analysis of Key Characteristics of the Dutch Corporate Tax System Inssaf Maatougui ANR 362183 Supervisor – Dr. Carla de Pietro Exam Committee – Prof. Dr. S.A. Stevens 19 June 2017 Table of Contents Preface………………………………………………………………………………………………….…….i Abstract……………………………………………...………………………………………………….…...ii Abbreviations and Acronyms…………………………………………………….………………………...iii 1 Introduction: An Analysis of the Dutch Corporate Tax System……………………….….……...1 1.1 Reason and Motivation for this Research………………....……..…………………………………...1 1.2 The Netherlands: a Tax Haven?.……………………………………………………………………..2 1.2.1 The Concept of Tax Haven…………………………………………………...…………….....2 1.2.2 The Dutch Corporate Tax system……….………………...…………………..………………2 1.3 The EU Fight against Aggressive Tax Planning……………………………………………………...4 1.3.1 The Importance of EU Developments……………………………………………….………...4 1.3.2 Aggressive Tax Planning…………………………………………………………..…………..5 1.3.3 The Underlying Problem………………………………………………………………………6 1.3.4 Anti Tax Avoidance Measures in the EU………………………………………………………6 1.3.5 Transparency is Key…………………………………………………………………………...7 1.4 Research Question and Scope..………………………………………………………………………7 1.4.1 Research Question……………………………………………………...……………………..7 1.4.2 Sub Research Questions………………………………………………………………...…….8 1.4.3 Research Design……………………………………………………………………………....8 1.4.4 Delimitations…………………………………………………………………………………..9 1.5 Methodology…………………………………………………………………………………………9 2 The Tax Haven Concept…………………………...………………………………………………10 2.1 Introduction: The Need for a Clear Definition of a Tax Haven……………………………..………10 2.2 Defining a Tax Haven……………………………………………………………………….………11 2.2.1 Factors Identifying a Tax Haven……………………………………...…………….......…….11 2.2.2 Aggressive Tax Planning……………………...……………………………….……………..11 2.2.3 Code of Conduct Group for Business Taxation……………………………...……………….13 2.2.4 Secrecy Jurisdictions………………………...……………………………………………….14 2.2.5 A Matter of Opinion………………..…………………...……………………..……………..15 2.3 Key Factors for Identifying a Tax Haven…………………………………………………………...15 2.4 In Conclusion: A Basis for the Following Analysis………………………………..…………..........16 3 Establishing a Benchmark: EU Developments…………………………………………………..18 3.1 Introduction: Establishing Standards Against Tax Avoidance………………………………..……..18 3.2 Tax Competition in the Internal Market………………………………………………..…………...19 3.2.1 The Internal Market…………………...……………………………………..……………….19 3.2.2 Fundamental Freedoms……………………........................................………………………20 3.2.3 The Prohibition of State Aid……………………...……………………….………………….20 3.2.4 The Concept of Abuse……………………...……………………………….………………..21 3.2.5 Tax Competition Within the Internal Market…………………………………..…………….22 3.2.6 Positive Integration…………………...………………………………………………………23 3.3 Anti Tax Avoidance Directive…………………………………………………………………........24 3.3.1 Interest Deduction Limitation………………………………………………………………..24 3.3.2 General Anti Abuse Rule……………………………………………………………………..25 3.3.3 Controlled Foreign Company Rules………………………………………………………….25 3.3.4 Hybrid Mismatches: Within the EU………………………………………………………….26 3.3.5 Hybrid Mismatches: With third Countries…………………………………………………...27 3.4 Transparency: A Solution to all Problems?……………………………………………………….....27 3.4.1 Tax Transparency Package…………………………………………………………………...27 3.4.2 Country-by-Country Reporting………………………………………………………………28 3.5 EU Measures: Object and Purpose………………………………………………..………………...28 3.5.1 Anti Tax Avoidance Directive………………………………………………………………..29 3.5.2 Tax Transparency…………………………………………………………………………….29 3.6 In Conclusion: EU Standards against Tax Avoidance……………………………………..………...30 4 An Analysis: Key Characteristics of the Dutch Corporate Tax System......................................32 4.1 Introduction: Analysing a Corporate Tax System…………………………………………………...32 4.2 The Netherlands: Key Characteristics of its Corporate Tax System………………………………..32 4.3 The Innovation Box…………………………………………………………………………………33 4.4 The Participation Exemption………………………………………………………..………………33 4.4.1 Article 13 DCITA…………………………………………………………………………….33 4.4.2 Motive Test…………………………………………………………………………………...34 4.4.3 Asset Test……………………………………………………………………………………..34 4.4.4 Effective Tax Rate Test……………………………………………………………………….34 4.4.5 Rationale behind the Participation Exemption……………………………………………….34 4.5 Withholding Tax Rules……………………………………………………………………………...35 4.5.1 Withholding Taxes on Dividends…………………………………………………………….35 4.5.1.1 Exemption……………………………………………………………………………………….35 4.5.1.2 The Dutch Cooperative……………………………………………………….......................36 4.5.1.3 Foreign Substantial Interest Rules…………………………………………………………..36 4.5.2 Withholding Taxes on interest and Royalty Payments……………………………………….36 4.6 Tax treaty Network…………………………………………………………….……………………35 4.6.1 Tax Treaty Advantages: Object and Purpose…………………………………………………36 4.6.2 Recent Developments………………………………………………………………………...38 4.7 The Ruling Practice…………………………………………………………………………………38 4.7.1 The Dutch Ruling Practice: Object and Purpose……………………………………………..38 4.7.2 Substance Requirements……………………………………………………………………...39 4.8 Current Developments and Amendments in the Netherlands……………………………………….39 4.8.1 The Innovation Box…………………………………………………………………………..39 4.8.2 The Treatment of Holding Companies……………………………………………………….40 4.8.3 The Dutch Cooperative and Dividend Withholding Taxes……………………………...…....40 4.8.4 Relevant Substance…………………………………………………………………………...41 4.8.5 The Ruling Practice…………………………………………………………………………..41 4.8.6 Country-by-Country Reporting………………………………………………………………42 4.8.7 EU Influences: Substantial Amendments to the Dutch Corporate tax System………………42 4.9 Previous Reports: An Evaluation……………………………………………………………………43 4.9.1 The European Commission: Aggressive Tax Planning Indicators…………………………...43 4.9.2 Oxfam-Novib…………………………………………………………………………………44 4.10 In Conclusion: An Assessment of the Dutch Corporate Tax System………………………...44 4.10.1 Benchmark……………………………………………………………………………………44 4.10.2 Identifying a Tax Haven……………………………………………………………………...45 5 Conclusion and Recommendations……………………………………………………………….47 5.1 Answering the Research Question......................................................................................................47 5.2 A Suiting Definition: Key Factors………………….……………………………………….............47 5.3 An EU Benchmark and Implementation Requirements…………………………….........................48 5.4 The Netherlands: Tax haven on Earth?…………….………………………………………..............48 5.5 Recommendations for the Dutch Corporate Income Tax System……………………………...........49 5.6 Final Reflections……………………………………….....................................................................50 5.6.1 (C)CCTB?……………………………………………………………………………………50 5.6.2 The underlying Problem……………………………………………………………………...51 Bibliography………………………………………………………………………………………...............I Annex I – Model Aggressive Tax Planning Structures.………………………………..……...………..IV Annex II – Aggressive Tax Planning Structures…..…………………………..……...……………….....V Annex III – Time Span BEPS Developments in the EU…..………………………..……...…………...VI Preface With this Master’s thesis I conclude my International Business Taxation LL.M curriculum, which has not only been an educational one, but a challenging one as well. Times are changing rapidly and logically, taxation is changing along, trying to keep up with the economically integrated and global world of today. During this program at Tilburg University, challenging international developments in the field of taxation have been brought in a refreshing way, providing a lively discussion platform for academically, politically and socially relevant issues. With this thesis, I would like to combine these international developments with my Dutch background and tackle the controversial concept of tax havens in a fiscal environment focused on countering tax avoidance. i Abstract Taking into consideration the increasing attention for countering tax avoidance and aggressive tax planning within the EU, while EU Member States are simultaneously offering tax incentives with the aim of attracting foreign investors, the question comes up whether the Netherlands, known for having a ‘highly competitive fiscal climate’ at place, is a tax haven. After clarifying the tax haven concept, an EU benchmark is established against which key characteristics of the Dutch corporate tax system are assessed. Although recommendations can be made for further aligning the Dutch corporate tax system with the current fiscal environment, the Netherlands is not considered a tax haven. ii Abbreviations and Acronyms ATAD Anti Tax Avoidance Directive ATAP Anti Tax Avoidance Package ATP Aggressive Tax Planning BEPS Base Erosion and Profit Shifting CIT Corporate Income Tax CbC Country-by-Country DCITA Dutch Corporate Income Tax Act EU European Union GNI Gross National Income G20 Group of 201 MLI Multilateral instrument MNE Multinational enterprise NGO Non-governmental organisation OECD Organisation for Economic Cooperation and Development SME Small and medium-sized enterprise TEU Treaty of the European Union TFEU Treaty on the Functioning of the European Union US United States (of America) V-N Vakstudie-Nieuws, Dutch legal magazine WFR Weekblad Fiscaal Recht, Dutch legal magazine