Opportunities for International License and Finance Activities
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The Dutch tax authorities have recently provided further guidance on
the policy of Dutch financial services companies, in particular back-to-back
"The new guidelines provide an opportunity going
forward for new international licensing and financing activities
in the Netherlands."
Following a period of uncertainty, it is again possible to obtain a new
favorable tax ruling (APA) for Dutch companies involved in licensing activities.
For finance companies, the APA process has already been functioning successfully
for a number of years. The new guidance further fine-tunes the policy and
decreases its administrative burden.
Given the extensive Dutch tax treaty network, an APA can facilitate withholding
tax planning in international structures, mitigating the withholding tax
burden on royalty and interest payments.
The new guidelines provide an opportunity going forward for new international
licensing and financing activities in the Netherlands. However, existing
structures that already use a Dutch back-to-back licensing or finance company
should also be re-assessed, since the new guidelines will apply to all financial
services companies as of January 1, 2006.
Greenberg Traurig’s Amsterdam office was the first firm in the Netherlands
to file a ruling request for a licensing company based on the new guidelines.
Given its extensive tax treaty network, the Netherlands has historically
been a popular jurisdiction in which to locate a financial services company,
in order to facilitate royalty and interest withholding tax planning in
international structures. Under application of the former ruling practice,
Dutch financial services companies could report a fixed spread in the Netherlands,
which for licensing companies was based on a sliding scale.
As part of the introduction of new rules in 2001 and a reform of the
ruling policy into an APA/ATR practice, operational substance and economic
risk requirements were introduced. In addition, the remuneration of a Dutch
financial services company should, as of that date, be determined in line
with the OECD transfer pricing guidelines. These requirements needed to
be met in order to obtain an APA, while existing rulings were grandfathered
until year end 2005.
Until now, it has been unclear how the economic risk requirement of a
licensing company should be met and how its remuneration (transfer pricing)
should be determined. This has resulted in a setback in the number of rulings
that has been issued over the past several years.
Recently, Greenberg Traurig’s Amsterdam office agreed with the Dutch
tax authorities on an acceptable transfer pricing method for a US client,
which provides guidance on the economic risk requirement. As a result, the
remuneration of a Dutch licensing company should take into account the following
1) A fixed return on a minimum equity, including a market risk remuneration,
2) A handling fee.
The calculation methods are further fine-tuned by taking into account
the volume of the royalty flow, distinguishing small, medium and large licensing
As a result, it again becomes possible to obtain a favorable APA in the
Netherlands for licensing activities. In fact, based on our findings, the
taxable spread to be reported in the Netherlands is expected to be substantially
lower, as compared to the old ruling regime. In addition, the clear transfer
pricing guidelines mitigate the transfer pricing documentation requirements.
Greenberg Traurig’s Amsterdam office has already filed a ruling request
based on the new guidelines and therefore has in-depth knowledge of the
acceptable transfer pricing methods and documentation requirements.
As of the introduction of the real risk requirement, there has been clear
guidance in Dutch tax law on how the economic risk of a finance company
could be determined. As such, the APA practice for finance companies has
already been functioning successfully for several years.
In this respect, the recent guidance from the tax authorities further
improves and fine-tunes the APA practice for finance companies, in particular
with respect to the acceptable transfer pricing methods and the transfer
pricing documentation requirements, also distinguishing small and large
The new guidelines will be applicable to all financial services companies
as of January 1, 2006. Given the track record of the Dutch ruling practice,
there are still a large number of ‘old’ Dutch financial services companies
in place in international corporate structures. In light of recent developments,
it should be assessed whether the current compliance and local substance
of these companies is in line with the new guidelines and whether obtaining
a new ruling would be favorable.
This Alert was written by
Pie Geelen and
Thomas van der Vliet in the
Amsterdam office. Please contact Mr. Geelen at + 31 20 30 17 307 or Mr.
van der Vliet at +31 20 30 17 387 or your Greenberg Traurig liaison, if
you have any questions regarding the subject matter of this Alert.
© 2005 Greenberg Traurig
For more information, please review our Tax Practice description, or
feel free to contact one of our attorneys.
This GT ALERT is issued for informational purposes only and is not intended
to be construed or used as general legal advice. Greenberg Traurig attorneys provide
practical, result-oriented strategies and solutions tailored to meet our clients’
individual legal needs.