Doing Business in the Netherlands 2012 - American Chamber of ...

Doing Business in the Netherlands 2012
shareholding in a subsidiary. Historically, the participation exemption
regime resulted in the establishment of thousands of holding
companies in the Netherlands.
A shareholding in a subsidiary generally qualifies for the participation
exemption if it represents 5% or more of the nominal issued paid-up
capital of the subsidiary, unless the subsidiary is (deemed to be) held
as a passive investment and can be classified as a so-called “low-taxed
passive investment company.”
A subsidiary is considered to be held as a passive investment if the
taxpayer’s objective is to obtain a return that may be expected from
normal asset management. If the taxpayer has a mixed motive, the
predominant motive is decisive. A subsidiary is not held as a passive
investment if the subsidiary is engaged in the same line of business as
the enterprise conducted by the taxpayer. This subjective criterion
provides more room for Dutch tax inspectors to grant tax rulings with
respect to the application of the participation exemption.
A subsidiary will be deemed to be held as a passive investment if
more than half of the subsidiary’s consolidated assets consist of
shareholdings of less than 5% or if the predominant function of the
subsidiary – together with the function of lower tier subsidiaries – is
group financing. A subsidiary may still qualify for the application of
the participation exemption if the subsidiary is a) subject to a “realistic
levy of tax” by Dutch standards (the “subject to tax test”) or b) the
assets of the subsidiary consists of less than 50% of free portfolio
investments (the “asset test”).
Ad a) The subject to tax test
If a subsidiary is not subject to a tax on profits which results in a tax
levy of at least 10%, the subsidiary does not meet the subject to tax
test. Whether or not a subsidiary is subject to tax of at least 10% on
its profits should be recalculated according to Dutch tax standards. In
this respect, loss carry forward, double taxation or group relief should
not be taken into account. Although this test requires a comparison of
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