Exit tax for certain cross-border reorganizations

Revised proposal for a Dutch exit tax for certain cross-border reorganizations

News

09-10-2020

On 9 October 2020, a revised version was published of the proposal for an “exit tax” for Dutch dividend withholding tax (DWT) in case of certain cross-border mergers, demergers, migrations and share-for-share mergers. It remains unclear whether there will be a majority for this proposal. The revised version includes important changes compared to the initial proposal. The proposal still has retroactive effect to 18 September 2020.

Initial proposal and earlier developments

The original proposal was published on 10 July 2020 (see our Tax Flash), and an amendment was published on 18 September 2020 that inter alia abolished the threshold of EUR 750 million turnover (see our Newsletter).

Advice of Council of State

Together with the revised proposal, the advice of the Council of State was published. The Council of State has strong objections against the proposal as well as the revised proposal and advised that it should not be submitted to parliament. Given this negative advice and the fact that this is a proposal by a member of the opposition, it is unclear whether there will be a majority for this proposal.

Most important changes

Compared to the original proposal, the most important changes are the following:

The exit tax would not apply for the first EUR 50 million of profit reserves that are deemed to be distributed in case of a cross-border reorganization.
An anti-abuse provision is included pursuant to which transactions with the main purpose or one of the main purposes of avoiding the exit tax, would also be covered by the exit tax.
The method of levy and payment of the exit tax is amended. The tax would be due by the company upon the cross-border transaction, but automatic extension of payment would be granted. The actual payment of the tax would be postponed until distributions are made by the company. The proposal grants a right of set-off vis-à-vis the shareholders for the tax due, but the proposal does not describe how this should be enforced.
Additional situations are added whereby the exit tax due will be waived. This includes situations where the company is liquidated and there are insufficient profit reserves, or the other country introduces a dividend withholding tax.
The proposed application of the “incorporation fiction” for a transfer of the place of effective management of entities incorporated under foreign law is no longer included.

We will keep you informed of further developments. For further information, please contact your trusted advisor.