Hybrids - The Netherlands

Report
Hybrids – the Netherlands
18th Cross Atlantic and European Tax Symposium
21 November 2014 – Peter Adriaansen
The Netherlands – general view hybrid mismatches
•
The Netherlands will await the further recommendations (2015) before further changes in domestic law are made
•
The general view of the Netherlands can be inferred from views on the amendment of the EU PS-Directive
- The Netherlands has a preference for juridically enforceable solutions to neutralise any tax imbalances resulting from the
use of hybrid instruments
- The Netherlands supported the amendment of the EU PS-Directive i.e. the implementation of the ‘defensive rule’ (also
proposed in Action 2 Deliverable) with respect to deduction/no inclusion (D/NI) mismatches
•
The position on a GAAR has shifted. The Netherlands did not support initial proposal, whereas the Netherlands may agree
on current proposal
2
EU PS-Directive – current GAAR proposal
Article 1(2)
Member States shall not grant the benefits of this Directive to:
- an arrangement or a series of arrangements
- put into place for the main purpose or one of the main purposes of obtaining a tax advantage which defeats the
object or purpose of this Directive, and
- is not genuine having regard to all relevant facts and circumstances.
Article 1(3)
For the purposes of paragraph 2, an arrangement or a series of arrangements shall be regarded as not genuine to the extent
that they are not put into place for valid commercial reasons which reflect economic reality.
Article 1(4)
This Directive shall not preclude the application of domestic or agreement-based provisions required for the prevention of tax
evasion, tax fraud or abuse.
3
Hybrid Entities – Example (1)
US
Tax haven
USCo
CV
BV
Partnership
(CV)
Netherlands
Interest /
royalties
NL transparent, US opaque
NL opaque, US transparent
Current tax treatment - Deduction/No Inclusion
BV
CV
US Co
Interest/royalties deductible
No taxation
Income only taxable upon distribution by the partnership
DutchCo
(BV)
4
Hybrid Entities – Example (2)
Proposal in March ‘14 Discussion Draft
USCo
US
Tax haven
Partnership
(CV)
Primary rule:
Secondary rule:
Defensive rule (1):
Interest /
royalties
Defensive rule (2):
Netherlands
DutchCo
(BV)
USCo should include income
Treat CV as taxable for interest/royalty income if that income
is not taxed in the US under the Primary rule
BV should deny deduction to the extent that Primary and
Secondary rule do not eliminate the non-inclusion of
interest/royalty income
Xco should deny deduction to the extent that the Primary,
Secondary and Defensive rule (1) do not eliminate the noninclusion of the interest/royalty income
Proposal in September ‘14 Deliverable would seem to read
Interest /
royalties
Country X
Primary rule:
Defensive rule:
BV should deny deduction
None (not necessary, given Deliverable Recommendation 5)
XCo
5
Hybrid instruments – Timing mismatches
March ‘14 Discussion Draft
“In order to fall within the scope of the rule, the arrangement should result in an erosion of
the tax base of one or more jurisdictions where the arrangement is structured. For example,
the hybrid mismatch rule limiting D/NI outcomes should not address differences in the
timing of payments…”
Yco
Interest
Country Y
Country X
XCo
Yco is taxed on a cash basis
Xco is taxed on an accrual basis
September ‘14 Deliverable
“Differences in the timing of the recognition of payments will not be treated as giving rise to a
D/NI outcome for a payment made under a financial instrument, provided the taxpayer can
establish to the satisfaction of a tax authority that the payment will be included as
ordinary income within a reasonable period of time.
6

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