This story started in June 2020, when Unilever announced that it intended to move the tax residency form its worldwide head office from Rotterdam to the UK. However, it got an extra boost when on November 15, 2021, Shell announced that it was seeking shareholder approval to simplify its corporate structure and that it intended to move its tax residency to the UK. To many in the Netherlands this announcement came as a shock. Quickly 2 camps were formed. Since it was assumed that the Dutch dividend withholding tax and the absence of such tax in the United Kingdom was one of, if not, the main reason that Unilever and Shell moved their worldwide head offices from the Netherlands to the UK, one camp pled for a complete abolishment of the Dutch dividend withholding tax. The other camp led by the Greens (GroenLinks) pled for the introduction of a new exit levy that would keep multinationals from moving the tax residency of their headquarters out of the Netherlands.
On July 10, 2020, when rumors started to surface that Unilever was considering to move the tax residency of its head office to the UK, a former Member of the GroenLinks fraction (Member Snels) in the Dutch House of Representatives drafted a bill for the introduction of a conditional exit levy that would apply if the tax residency of a headquarter is moved out of the Netherlands. Since Juli 10, 2020 the proposal has been amended a few times. The most recent/current version of the bill is the version from December 8, 2021 and it is being defended by MP Van der Lee (a current member of the GroenLinks fraction in the House of Representatives).
The aim of the proposal is to safeguard the Dutch dividend withholding tax claim on the existing (deferred) profit reserves of an entity that has its tax residency in the Netherlands in the event of cross-border reorganizations (relocation of the tax residency, mergers and legal demergers) if the new jurisdiction of tax residence does not levy a withholding tax on dividends or if that country at the moment of ‘entry’ designates the existing (deferred) profit reserves as paid-up capital.
In order to achieve the aforementioned aim the billcontains an additional measure in the form of a fictional place of residence. In addition, it introduces a final settlement in the dividend withholding tax over the existing (deferred) profit reserves of an entity that departs from the Netherlands to a jurisdiction outside of the EU or the EEA. The scope of this tax is limited by a new withholding exemption. The bill furthermore contains a fictitious moment of payment and it also introduces a so-called step-up scheme. Finally, the bill is intended to have retroactive force up to and including December 8, 2021, 09.00 CET.
On July 15, 2022 the Secretary of State for Finances sent a letter containing the Cabinet’s response to the law proposal to the Dutch House of Representatives. In its letter the Cabinet advises the House of Representatives not to adopt the bill. The Cabinet's objections to the bill can be summarized as follows:
1. The effectiveness and efficiency of the bill are questionable:
2. The amendments proposed in the bill represent a major systemic change to the Dutch dividend withholding tax Act, while the levy only applies to a very limited group of shareholders.
3. The exercise of the company's right of recourse against its shareholders is too complicated.
4. There is a real chance that a judge will consider the bill to be contrary to Dutch tax treaties and the good faith that the Netherlands must observe in its interpretation and application thereof.
(i) risk concerning the legal sustainability due to a possible conflict with good faith to be taken into account with respect to treaties.
(ii) The risk on double taxation.
5. The proposed tax is contrary to the free movement of capital.
6. Since it does not seem to be possible to objectively justify the proposed franchise of €50 million, this franchise may lead to a selective advantage and therefore to a risk of it qualifying as state aid being granted to companies that fall below that threshold.
7. It will be very difficult to implement the bill.
8. The retroactive effect of the measures included in the bill does not seem justified and the many changes in the entry into force lead to (legal) uncertainty for entities and their (potential) shareholders.
9. The final levy will have a negative impact on investments in the Netherlands.
In his letter the Secretary of State elaborates on the 9 objections the cabinet has to the bill.
You can download the full text of the letter (only available in Dutch) as sent by the Secretary of State to the House of Representatives here.
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