Amended protocol of the DTA with the Netherlands in force

The most important amendment to content in the protocol is an adjustment to the definition of permanent establishment. The DTA ascribes a right of taxation to the state in which a permanent establishment is located, but also states exceptional circumstances in which the term ‘permanent establishment’ is not met. Until now, these exceptional circumstances were not tied to any other conditions. In future, all exceptional circumstances will be subject to the condition that they have to be preparatory activities or ancillary activities.

This tightening of the rules particularly has an effect on international sales structures. For example, up till now a warehouse in the Netherlands belonging to a German company did not constitute a permanent establishment in the Netherlands. In future, this will only be the case if the storage activities are merely preparatory or ancillary activities.

Furthermore, the protocol creates in the DTA with the Netherlands a minimum holding period for the distribution of dividends. According to this, in addition to having to hold a 10 percent minimum stake, a reduction in withholding tax to 5 percent is now only possible if a minimum holding period of 365 days is observed before the dividend is distributed. The rules concerning the parent-subsidiary directive are not affected.

The protocol also changes the definition of “real estate company”. According to the DTA, the right to tax the proceeds of the sale of real estate companies is attributed to the state in which the properties are situated. Until now, “real estate company” was defined based on the proportion of the value of the properties to total assets on the transfer date. Under the revised version, it is sufficient if the entire proportion of value required is exceeded at any point during the 365 days before the sale.
A principal purpose test (PPT) clause was also included in the DTA. This clause ensures that an advantage is not granted on the basis of the treaty if the only purpose of the transaction is to gain tax advantages.

Practical note

Act now: In cross-border situations with the Netherlands, the amended rules must be observed from January 2023. In particular, business dealings in the Netherlands that do not currently constitute a permanent establishment should be checked to see whether the planned amendments now lead to tax obligations there.