Stricter requirements for issuing rulings

Stricter requirements are being introduced for the issue of international tax rulings. The Tax and Customs Administration will also be publishing an anonymised summary for each ruling. This is the substance of the letter sent by the State Secretary for Finance to the House of Representatives on Thursday. 

The aim is to have the measures put into effect on 1 July 2019. Under the new measures, letterbox companies that only establish in the Netherlands for tax reasons and have no other economic value will no longer receive a ruling from the Tax and Customs Administration.

Secretary of State Menno Snel: "Many people associate the issuing of rulings with shady practices. But a ruling gives companies nothing more or less than prior clarity about the method of taxation based on the law. We plan to make substantial changes to the law in the years to come in order to prevent the Netherlands from being used as a conduit to tax havens. We are also tightening up the rules for issuing rulings and making this transparent for all concerned."

Motives for ruling applications
From now on, the purpose of the ruling application will be examined more closely. No ruling will be issued if the sole motive is to save Dutch or foreign tax. This also applies to rulings for companies based in low-tax countries or which are on the European Union's blacklist. Low-tax countries are countries with a tax rate lower than 9%.

When a ruling is applied for, stricter requirements are also set regarding the physical presence of a company in the Netherlands. For example, consideration is given to whether the company is employing enough people in relation to its overall size or its activities in the Netherlands. The costs incurred must also be in proportion to what the company does in the Netherlands. And the type of work must be appropriate to the company's financial flows. Take a distribution centre employing 100 people, for example: it makes no sense for these people to be involved in managing billions in loans.

More transparent
The ruling system will also be made more transparent. The Tax and Customs Administration will publish an anonymised summary of each international ruling it issues directly and will also publish an annual report. Also, independent experts will continue to investigate annually whether the rulings that have been issued are lawful and in accordance with the rules.  

One team
All international rulings that are applied for will now be forwarded to one central team before being issued. This is currently only the case for certain types of rulings. In future, all international rulings will have a maximum term of five years; this can only be extended to ten years in exceptional cases only. 

At the beginning of this year, the Ministry of Finance carried out an investigation into the issue of almost 4,500 international rulings, which revealed that the internal procedures had not been followed in all cases. This is what prompted the review of the ruling system.