The Dutch Tax Authority’s Pillar Two Knowledge Group has issued new guidance under the Minimum Tax Act 2024, clarifying key technical rules on treaty-based permanent establishments, joint venture classification, and residency and transition treatment for JV structures within the Pillar Two framework.
The Dutch Tax Authority’s Pillar Two Knowledge Group has issued a series of positions on the application of the Minimum Tax Act 2024. These guidelines provide clarification on how the Act should be applied in relation to various specific issues under the Pillar Two framework.
These guidances clarify specific definitions and technical applications of the Minimum Tax Act 2024 (WMB 2024) in the Netherlands, focusing on the taxation of permanent establishments and joint ventures.
The following covers the three publications provided by the Dutch Tax Authorities (Belastingdienst) regarding the Minimum Tax Act 2024 (WMB 2024):
1. KG:911:2026:1 – Definition of a treaty-based permanent establishment
This clarifies the requirements for an entity to qualify as a “treaty-based permanent establishment” (PE) under Article 1.2, paragraph 1, part a, of the WMB 2024.
To qualify, an establishment must not only meet the definition of a PE under an applicable tax treaty, but the source state must also actually involve the income attributable to that PE in its taxation.
The source state must tax the income on a net basis, using a method comparable to how it taxes resident entities. This means a simple gross withholding tax (bronbelasting) is insufficient to satisfy the requirement. The source state’s right to tax must be based on a provision similar to Article 7 of the OECD Model Convention, including the “functionally separate entity approach” for attributing profits.
2. KG:911:2026:2 – Application of the joint venture definition
This addresses the specific criteria for an entity to be classified as a Joint Venture (JV) under Article 1.2, paragraph 1, of the WMB 2024.
An entity only qualifies as a JV if its financial results are reported using the equity method in the consolidated financial statements of the ultimate parent entity. Reporting based on fair value does not meet this requirement.
An entity in which the parent holds a 100% interest can still qualify as a JV, provided it is accounted for via the equity method. This is intended to ensure that entities not fully consolidated (and thus otherwise outside the scope of the WMB 2024) are still captured by the law.
The requirement to hold an interest of at least 50% must be assessed continuously. An entity qualifies as a JV from the moment the 50% threshold is met, and all other conditions are satisfied.
3. KG:911:2026:3 – Residency and transition rules for JVs
This explains how rules regarding tax residency and transition periods apply when calculating the top-up tax (bijheffing) for a JV group.
The residency rules in Article 1.3 WMB 2024 apply to JVs and their connected parties. Determining the fiscal residence is necessary to properly define the “JV group” and avoid “jurisdictional blending” between the JV and the main multinational group.
The temporary exemption for the Undertaxed Profits Rule (UTPR) during the initial phase of international activity does not apply to JVs. While the top-up tax for a JV is calculated as if it were a separate group, the actual tax is levied at the level of the parent entity holding the interest in the JV, making this specific transition rule irrelevant for JV calculations.
Other transition rules (such as those in Articles 14.1 and 17.1 WMB 2024) may still apply to JVs depending on their nature.
