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

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loan to its subsidiary if this loan has been written off by the creditor. However, this gain is not taxed immediately. Instead, a revaluation reserve is created upon conversion, equal to the amount by which the loan has been written off. If the fair market value of the loan increases again after the loan has been converted into equity, a taxable profit is recognized for the amount of the increase. The revaluation reserve is simultaneously written off for the same amount of profit. 18.4.5 Possible Tax Planning Opportunities The application of the Dutch participation exemption may provide for in a number of interesting tax planning opportunities, depending on certain facts and circumstances. There are certain significant examples. 18.4.6 Active Companies Located in “Tax Havens” Active companies in tax haven jurisdiction used to be disqualified from the participation exemption due to the subject-to-tax requirement. As this requirement was abolished for active companies in 2007, shareholdings of 5% or more in active operations that are completely exempt from local taxation are now eligible for the Dutch participation exemption. This makes the Netherlands more attractive than in the past for all sorts of active investments in jurisdictions that traditionally do not levy a profit tax or grant extensive tax holidays and that are currently referred to as “tax havens.” 18.4.7 Mutual Investment Funds and Private Equity Funds In respect of mutual investment funds, the participation exemption regime used to be available to 5% quota holders in Dutch mutual investment funds only. Currently, provided the mutual investment fund qualifies for the participation exemption, a Dutch holding company may apply the participation exemption to such investments, regardless of the jurisdiction in which the fund is located. This makes the Netherlands an excellent jurisdiction for feeder companies holding large investments in certain mutual and private equity funds, specifically in combination with the use of a Dutch Cooperative, as a 174 Baker & McKenzie
Doing Business in the Netherlands 2012 Cooperative is in principle not subject to Dutch dividend withholding tax. (we refer to 18.1.6) 18.4.8 Hybrid Instruments Whether the participation exemption applies to proceeds from hybrid debt instruments in cross-border situations used to be contingent on the requirement that these proceeds were non-deductible at the level of the debtor. The rationale of this requirement was the prevention of double dip structures resulting from mismatches in the classification of debt instruments in the jurisdictions involved. The abolishment of this condition and the extension of the participation exemption regime to hybrid instruments with certain characteristics might result in double dip structures allowing a Dutch parent company to derive exempt benefits from instruments, whereas the remuneration on the hybrid instrument is deductible in the country of issuance. 18.4.9 Real Estate Companies Finally, the amendments in 2007 to the participation exemption regime with respect to real estate companies were particularly favorable. If more than 90% of the property of the subsidiary (on a consolidated basis) consists of real estate and that real estate is not directly or indirectly owned by a fiscal investment institution, the participation exemption would apply, provided that the parent company holds at least 5% of the shares in the subsidiary. This “90% test” must be considered on the basis of the subsidiary’s consolidated balance sheet, with intercompany receivables and debts being set off against each other, meaning, they will not have any effect on the minimum real estate percentage. The value of the assets must be determined on the basis of their fair market value. For the years 2007–2009, it is therefore important to separate, as far as possible, real estate investments from business activities such as property management. If this is done properly, both the investment activities (real estate investment) and the business activities will qualify for the participation exemption. Baker & McKenzie 175
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Editorial Contributions Robert van
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Innovative ways to inform you Doing
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1 The Netherlands Doing Business in
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Steady-Course Policy Doing Business
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2 Legal Forms of Doing Business Doi
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2.3 Branch versus Subsidiary Doing
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4 The Subsidiary 4.1 Incorporation
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8 Commercial Contracts 8.1 General
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9 Real Estate 9.1 Ownership Doing B
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9.7 Leases Doing Business in the Ne
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10.5 The European Economic Area Doi
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12 Telecommunications 12.1 Market S
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12.9 Net Neutrality Doing Business
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14 Labor Law 14.1 Term Doing Busine
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21 Investment Incentives Doing Busi
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22 Financial Regulations 22.1 Excha
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23.3.3 Product Liability Doing Busi
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24.13 Arbitration Doing Business in
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Tax Corporate & International Tax H
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