The European Commission has formally requested the Netherlands to amend various parts of its tax legislation, as the Commission is of the opinion that they are discriminatory. The Commission’s request was partly a result of complaints filed by KPMG Meijburg & Co. The Commission primarily focuses on corporate income tax payable by non-resident companies and non-resident charitable institutions on income derived from a substantial interest, corporate income tax payable by non-resident charitable institutions on income from real estate and inheritance, and gift tax on country estates.
The Commission deems the Dutch tax rules for these cases to infringe EU rules on the freedom of capital movement. If the Netherlands does not reply satisfactorily within two months, the Commission may refer the Netherlands to the European Court of Justice (“ECJ”).
Non-resident companies with a substantial interest in the Netherlands
The Commission has requested the Netherlands to amend its legislation with regard to companies established elsewhere in the EU or the EEA that are taxed for income on shares in Dutch companies that are not part of their enterprise’s assets, as these are considered substantial interest. They do not benefit from the same exemption that Dutch resident companies do, namely, a participation exemption for income on shares. The Commission’s view is that this rule not only infringes EU law on free movement of capital, but also EU law on the freedom of establishment and the EU Parent-Subsidiary Directive.
Non-resident charitable institutions with a substantial interest in the Netherlands
In addition, the Commission has requested the Netherlands to amend its legislation under which resident charitable institutions that do not run a business are exempt from corporate income tax, whereas similar non-resident institutions are not. Dutch institutions that do not run a business but derive income from a substantial interest in Dutch companies or from receivables from companies in which they have a similar interest, are exempt from corporate income tax. Non-resident institutions are not, however, exempt from income from a substantial interest in Dutch companies. The Commission believes that these rules are in conflict with EU law on the freedom of capital movement.
Non-resident charitable institutions with income derived from real estate
The Commission has also requested the Netherlands to amend its tax rules that are deemed discriminatory for non-resident charitable institutions with real estate in the Netherlands. Under these rules, Dutch charitable institutions and churches that do not run a business benefit from a tax exemption for income from real estate in the Netherlands. Non-resident charitable institutions and churches do not, however, benefit from a tax exemption for similar income. The Commission is of the opinion that these rules infringe EU law on the freedom of capital movement.
Inheritance and gift tax on country estates
Finally, the Commission has requested the Netherlands to amend the rule which allows country estates situated in the Netherlands to benefit either partially or entirely from an inheritance and gift tax exemption, whereas bequests or donations with regard to country estates that are situated in other Member States or EEA countries, are subject to 100% taxation. The Commission finds that such provisions are discriminatory and infringe EU law on the freedom of capital movement.
We will have to wait and see what the Netherlands is going to do: amend various parts of its tax legislation or risk a negative decision from the European Court of Justice, should the Commission decide to bring the case before the Court.