Advantageous Dutch CV-BV Tax Structure Still Alive
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In the past, numerous U.S. multinationals established so-called Dutch
CV-BV structures. The purpose of this structure is to defer U.S. taxation
on foreign source interest income, royalties and dividends, while the interest
and royalty payments remain deductible in the source country. Upon implementation
of the Protocol to the U.S./ Netherlands tax treaty, January 1, 2005, it
seemed that the benefits of this structure would no longer apply. However,
in his Decree of July 6, 2005, the Dutch State-Secretary of Finance issued
conditions under which the benefits of this structure may still be granted
to U.S. shareholders.
The following is a simple diagram of the operation of a CV-BV structure:
The CV is a reverse hybrid entity (Dutch partnership/U.S. corporation).
For U.S. tax purposes, the foreign companies and the BV are tax transparent
entities, so that dividends, interest and royalties received by the BV are
considered active income of the CV. Accordingly, the earnings of this entity
will not be subject to U.S. corporate income tax until such amounts are
remitted to the U.S. corporation.
The BV is a hybrid entity (Dutch corporation/ U.S. branch (check-the-box
election)). Dependent of the activities of the BV, its profits will be remote
due to the pass-through of the royalties and/or interest income to the CV.
Dividends are normally exempt from Dutch corporate income tax under the
Interest and royalties paid from the BV to the CV are not subject to
Dutch withholding tax, while in general dividends are taxed at a maximum
of five percent Dutch dividend withholding tax (but possibly taxed at zero
The benefits of this structure include royalty and interest deduction
at the source, and no pick-up of this income in the Netherlands or the U.S.
In addition, dividends paid by the BV to the CV are not subject to U.S.
The new Protocol to the U.S./Netherlands tax treaty provided for a new
article 24, para. 4. Based on this article, from a Dutch taxation point
of view the U.S. corporation has no treaty protection with respect to the
interest, royalty and dividend income received from the BV. Consequently,
the Netherlands may levy a corporate income tax on the interest income received
by the U.S. corporation from the BV, and may levy a 25 percent Dutch dividend
withholding tax on dividends distributed by the BV. Consequently, the benefits
of this structure would no longer apply.
Decree of July 6, 2005 of the Dutch State-Secretary of Finance
In the Decree of July 6, 2005, the Dutch State-Secretary of Finance announced
that article 24, para. 4 of the U.S./Netherlands tax treaty would not be
applied, with the condition that the CV participates in a Dutch resident
entity (e.g., a BV) that performs substantial activities in or via the Netherlands.
Whether or not substantial activities are performed in or via the Netherlands
will be judged by the Dutch ruling team.
Clients that have established a CV-BV structure should be contacted to
check whether or not all requirements under the Decree of July 6, 2005 are
Other clients should also be contacted, as appropriate, to introduce
them to this CV-BV structure, which may be a valuable proposition for them.
The CV-BV structure can be used as an international acquisition structure
or as a beneficial tax finance or royalty structure.
This Alert was written by Gerwin de Wilde of the Amsterdam office. Please
contact Gerwin de Wilde at + 31 20 30 17 419 or your Greenberg Traurig liaison
if you have any questions regarding the subject matter of this Alert.
© 2005 Greenberg Traurig
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to be construed or used as general legal advice. Greenberg Traurig attorneys provide
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