Netherlands: Introduction of conditional withholding tax on interest
Following the Taxflash T12028, Clearstream Banking1 would like to informs customers that effective
1 January 2021
the Dutch government will introduce a conditional withholding tax at source on interest and royalty payments paid to low-tax jurisdictions and in abusive situations.
The tax plan for 2019 announced in September 2018 was anticipating the intention of the Dutch government to introduce a withholding tax on interest and royalty payments as of 2021.
It has since then been confirmed that it will apply when the interest or royalty is paid to affiliated entities resident in low-tax jurisdictions and in abusive situations. Entities will in general be considered as affiliated if the shareholder, either directly or indirectly, holds at least 50% of the voting rights. Entities can also be considered affiliates through a common shareholder.
The rate of withholding tax will be equal to the highest rate of corporate tax. The Dutch government’s Tax Plan for 2021 foresees a tax rate of 25%.
The conditional withholding tax is applicable on interest paid by a Dutch corporate entity to a related entity resident in:
- A jurisdiction with a statutory tax rate lower than 9%; or
- A jurisdiction that is included on the European Union (EUR) list of non-cooperative countries (the EU-list); or
- Other jurisdictions if the receiving entity allocates the payment to a permanent establishment in a jurisdiction that meets the conditions from points 1 or 2.
A list of all jurisdictions with a statutory tax rate lower than 9% or that is on the EU-list is published by the Dutch government at the end of each year. In 2020 it includes the following jurisdictions:
- American Samoa;
- British Virgin Islands;
- Cayman Islands;
- Isle of Man;
- Trinidad and Tobago;
- Turks and Caicos Islands;
- United Arab Emirates;
- Vanuatu; and
- the US Virgin Islands.
A three-years grandfathering period will be applicable if a treaty jurisdiction falls under the low-tax jurisdiction definition. During this period the Netherlands will seek renegotiation of the concerned double taxation treaty.
The conditional withholding tax can also be applicable in abusive situations which can be an artificial structure that is set up with the goal of avoiding Dutch withholding tax.
Impact on customers
The withholding and remittance responsibility for the conditional withholding tax on interest and royalty will lie with the paying company.
Clearstream Banking is not involved in this process and will only pay the interest amount received.
Customers should seek the advice of their own tax advisor for additional information on this new conditional tax.
For further information, please contact the Clearstream Banking Tax Help Desk, Clearstream Banking Client Services or your Relationship Officer.
1. Clearstream Banking refers collectively to Clearstream Banking S.A., registered office at 42, avenue John F. Kennedy, L-1855 Luxembourg, and registered with the Luxembourg Trade and Companies Register under number B-9248, and Clearstream Banking AG, registered office at 61, Mergenthalerallee, 65760 Eschborn, Germany and registered in Register B of the Amtsgericht Frankfurt am Main, Germany under number HRB 7500.