On May 16, 2017, the Dutch government released a public consultation for the previously announced legislative proposals regarding changes to the DWT (dividend withholding tax) rules for holding cooperatives. The Dutch government expected to have the new changes to the Dutch Dividend Withholding Tax Act (DWTA) enter into force on 1^st January 2018.

Proposed changes for cooperatives:

Mainly dividend withholding tax will be applied on holding cooperatives, but only if they have qualifying membership rights and the membership rights concerns an entitlement to at least 5% of the annual profit of the cooperative or 5% of the liquidation dividends.

Profit distributions on membership rights in cooperatives will be subject to DWT if the actual activities of the cooperative usually consist for more than 70% of holding participations or of group financing activities. Although the 70% test should be determined mainly based on the cooperative’s balance sheet total, other factors – such as the assets, liabilities, turnover and the nature of activities conducted by employees. The relevant testing period for the 70% test is the year preceding the profit distribution.

Dividend withholding tax exemption:

According to the Proposal, the scope of the current DWT exemption for EU and EEA shareholders will be prolonged to shareholders that are located in a tax treaty jurisdiction, provided that the tax treaty contains a dividend provision.

The Dutch administration proposes to extend the withholding tax exemption for dividends conveyed by Dutch organizations the place their non-resident shareholder may be a substance that:

• Shareholder need to hold at least 5% interest in the Dutch company;
• In case of tax treaty, resides in a jurisdiction that has concluded a tax treaty along with a dividend clause with the Netherlands.

In addition to the well-known substance requirements, the following two new conditions are proposed:

• A payroll expense criterion of at least EUR 100,000 (whereby this amount must be a fee for the holding activities) must also be met;
• During a period of at least 24 months the intermediate holding company must have its own office equipped with the usual facilities for performing holding activities.

Changes of anti-abuse provisions:

The draft bill acquires the present national anti-abuse procurements in line with EU law and treaty anti-abuse provisions. To evade a cover with those anti-abuse procurements in the Dividend Withholding Tax Act, the foreign substantial interest rules in the Corporate Income Tax Act will in future only apply to capital gains on the substantial interest.