Investment in/via the Netherlands

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1 Investment in/via the Netherlands Hendrik van Duijn DTS Duijn's Tax Solutions Zuidplein 36 (WTC Tower H) 1077 XV Amsterdam T T DTS NOW F duijn@duijntax.com of 12

2 Introduction Companies can set-up a business abroad directly or via the Netherlands; Structuring via the Netherlands can provide: Tax benefits; Investment protection benefits; and, Business benefits. This slide-deck is aimed at providing information to guide you through some of the benefits and considerations which need to be considered when looking into the most beneficial investment structure; 2 of 12

3 i. Business advantages ii. Investment protection advantages iii. Dutch tax advantages iv. Dutch tax opportunity a) CV/BV structure b) NIB note structure v. Overview vi. Informal capital approach explanation vii. DTS service offering Contents 3 of 12

4 Location The Netherlands is strategically located between the UK, France and Germany, whereby most people speak English, French and/or German. People Availability of highly skilled workforce, great possibilities to attract and retain global employees: a great place to work; Multilingual workforce whose productivity exceeds other European countries; Excellent international schools for a reasonable price; Low crime rate and a high quality of healthcare. Infrastructure Port of Rotterdam provides for great sea-freight infrastructure; Amsterdam Airport (Schiphol ) is one of the main airports in Europe; Quality of information and telecommunication, IT infrastructure; Corporate infrastructure with solid rules and regulations which allows for attractive regulations for IP rights. Businesses choose the Netherlands as a place to launch and register their brands. Economy Stable and open economy with low inflation, high labour participation; Government focus on sectors such as High Tech, Chemicals, Creative Industry, Agrofood, Water, Energy and Headquarters. i. Business advantages What is important for your business case? - What is your strategy? - Why expand, extend, export? - What s important? Location, people, infrastructure, economy, or low effective tax rate? - How important are the key decision factors, weigh them. 4 of 12

5 ii. Investment protection advantages Considerations A BIT treaty mitigates risks of expropriation and restriction on repatriation of funds. An applicable BIT can be considered free insurance. BIT protection should be taken into account when investing in countries with a higher risk profile. What is a BIT A BIT (Bilateral Investment Treaty) is an agreement between two States to regulate foreignowned assets; Protection to foreign investors from arbitrary treatment by host states; The scope, the treatment of investors, the expropriation of investments and the settlement of disputes is regulated; BIT s bite! BIT s are unilateral enforceable and provide for negotiation flexibility. Opportunities Interposition of a Dutch HoldCo allows for application of Dutch BIT s; The Netherlands has an extensive BIT network (90 BIT S); Peru, Bolivia and Venezuela are countries with increased risk with which the Netherlands have BIT s; Future BIT s are discussed by OXFAM/NOVIB as their application is thought to hinder the prosperity of developing countries; BIT s are discussed by the EU as they provide investment benefits for residents of specific EU countries and provides for an investment advantage. Is investment protection on your radar? - Do you need investment protection? - What kind of investments need protecting? - Which country exposure exists? - What value needs to be attributed to the investment? - How much does regular insurance cost? 5 of 12

6 Overview of the Dutch corporate income tax system Maximum Dutch corporate income tax rate of 25%; Effective tax rates very competitive (including subsidies and incentives); Full participation exemption (capital gains, dividends no holding period); Full exemption for branch profits; Use of fiscal unity and functional currency possible; No domestic interest and royalty withholding tax; Very sophisticated (binding) ruling practice; Extensive tax treaty network (part of the EU, application of directives). Dutch PIT 52% highest personal income tax bracket, with a 30% fixed deductible for foreign employees (30% ruling); resulting in an effective tax rate of less than 36,6%; Foreign employees with a 30% ruling are exempt from PIT on portfolio investments. Other As the logistics centre of Europe, the Netherlands have flexible customs duty and VAT regulations. Open and pragmatic approach of the DTA; Fiscal representation allowing VAT (21-6%) on import entailing that VAT does not have to be pre-financed. Goods can be stored and distributed from the Netherlands to other entrepreneurs (in or outside the European Union) under 0% VAT. iii. Dutch Tax advantages Determine the purpose of the Dutch HoldCo: Which income type is expected, how is it currently taxed, how is it taxed via an intermediate HoldCo. Which tax burden needs to be mitigated to assure low effective tax rate. Which goods/ services are involved? 6 of 12

Benefits CV not subject to Dutch and/or US taxation; Dividends, interest and royalties not taxed in the US until repatriation to the US; Dutch treaty network to reduce foreign withholding tax rates

7 Benefits CV not subject to Dutch and/or US taxation; Dividends, interest and royalties not taxed in the US until repatriation to the US; Dutch treaty network to reduce foreign withholding tax rates Dutch participation exemption regime applies (no Dutch tax on dividends and capital gains from ROW); Royalty and financing income limited to functions and risk (spread). Structures Mismatch between statutory accounting rules and TP rules leads to overcompensation of BV in relation to its functional and risk profile; This mechanism works with non-interest bearing notes, flexible royalty/ip/principal structures. The Dutch legal entity s excess profit (overcompensated amount) is considered to be a capital contribution for tax purposes, e.g. the excess profit is not taxed. This lowers BV s statutory effective tax rate. Without a direct pick-up in another jurisdiction, deferral is achieved lowering the overall effective tax rate; iv. Dutch Tax Opportunity US Co (USA) Dutch CV (Non-resident) BV (The Netherlands) a) CV/BV structure Tried and tested CV/BV structure. Efficient, finance and holding company structure. Dividend, Interest and Royalty payments Considerations Minimum substance requirements in the Netherlands at BV and/or ROW level in order to claim reduced foreign withholding tax rates, as well as US-NL treaty application; Ruling can be obtained to report taxable small margin (spread) CV can be replaced by a foreign partnership or another entity. R O W Dividend, Interest and Royalty payments 7 of 12

8 Benefits Dividends, interest and royalties not taxed in the Canada until repatriation; Coop can be tax exempt from Dutch dividend withholding tax; Dutch treaty network to reduce foreign withholding tax rates; Dutch participation exemption regime applies(no Dutch tax on dividends and capital gains from ROW; Netherlands only taxed for functions and risk (spread). Structures Mismatch between statutory accounting rules and TP rules leads to overcompensation of BV in relation to its functional and risk profile; This mechanism works with non-interest bearing notes, but could also work from a Dutch perspective with flexible royalty/ip/principal structures. Without a direct pick-up in another jurisdiction, deferral is achieved lowering the overall effective tax rate; Trapped cash in Coop can be managed by using a sister company (CanCo subsidiary) in a tax haven. iv. Dutch Tax Opportunity Can Co (Canada) Coop (The Netherlands) NIB Note B) NIB note structure Tried and tested NIB structure. Efficient, finance, royalty and holding company At arm s length Interest and Royalty Expenses Considerations Minimum substance requirements in the Netherlands at BV and/or ROW level in order to claim reduced foreign withholding tax rates, as well as US-NL treaty application; Ruling can be obtained to report taxable small margin (spread); Canadian FAPI rules need to be considered. R O W Dividend, Interest and Royalty payments 8 of 12

9 v. Overview Direct investment Advantages No additional entities in the structure; No increased complexity of the structure; Retaining low maintenance costs (substance, local board meetings, etc.); Prompt set-up time. Possible Disadvantages Business objectives, growth, expansion strategy not implemented; No or less asset protection; Less favorable tax treatment of funds repatriated from investment; Less flexibility with regard to international structuring. Intermediate HoldCo Advantages (HoldCo) Disadvantages (HoldCo) Business Reasons Structure in line with business model; Business sector is present in host country; Management is willing to settle in the host country. Maintenance costs in connection with additional entity; Maintenance time spent in connection with additional entity; Business sector is not present in host country. Asset Protection Investment in High Risk Jurisdiction; Insurance premiums versus maintenance expenses; BIT in force. Low risk investment countries; Already BIT in place or no more favorable BIT; Insurance premiums outweigh maintenance expenses. Tax reasons Deferral achieved; Efficient financing or royalty structure achieved; Source country withholding tax expense reduced. No tax savings expected; Tax savings do not outweigh maintenance expenses. Positive Caution Negative 9 of 12

10 vii. DTS service offering We at DTS provide Dutch tax advice and we have fun in entangling the complex Dutch legislation. We specialize in Dutch corporate income tax and Dutch dividend withholding tax advice and issue tax opinions that add value! Through our international tax network of independent tax advisors, DTS is able to provide seamless cross border and cross discipline tax advice. Covering various countries as well as various tax specialties next to Dutch corporate income tax advice such as VAT, wage withholding tax and customs. We can include the services of other specialists in our engagement letter, which reduces your legal compliance. DTS has an excellent working relationship with the Dutch tax authorities we know what they want! Moreover, we are continuously in touch with the tax authorities to stay in the know regarding new developments. Hendrik has over 15 years of Big4 and Little4 experience advising numerous companies on Dutch and international tax structures, negotiating APA s and ATR s, meeting documentation requirements and assisting with the set-up of new operations in the Netherlands. We can help and make the difference. We combine Dutch tax technical expertise with an accounting degree. DTS Dutch corporate income tax advice is legally on the mark. We can take care of the most complex tax compliance projects. With regard to transfer pricing (TP) projects DTS has prepared/reviewed numerous TP documents, functions ranging from logistics to IP, financing to management services. DTS s TP services are divided in three categories i) Offence: TP Planning and services that improve the effective tax rate, ii) Defense: TP Planning and services that defend the taken position and iii) TP Compliance: TP documentation, tax return disclosures, fulfilling statutory requirements. We work together with independent TP consultants who perform benchmark analysis and operates cross border, covering the US as well as Europe. Hendrik as an International Tax Partner is a registered auditor (in business) in the Netherlands. As a fully certified auditor he assisted US multinationals with meeting their Dutch audit requirements of 12

11 SCOPE LIMITATION The strategies proposed in this slide-deck are based on general information and we do not have any specific information on several issues which are needed to provide a tailor-made solution. This slide-deck is intended to provide preliminary guidance only in anticipation of further discussion and analysis of issues to be identified. The slide-deck has not been prepared with the level of due diligence and analysis that would be needed to initiate or refrain from any actions. Further research and analysis is required on various issues prior to implementing any structures described. This slide-deck does not represent an opinion of DTS and should not be relied upon as such. This slide-deck has not been reconciled with the Dutch tax authorities and the intended result may differ from the actual result. Hendrik van Duijn DTS Duijn's Tax Solutions Zuidplein 36 (WTC Tower H) 1077 XV Amsterdam This document was not intended or written to be used, and it cannot be used, for the purpose of avoiding U.S. federal, state or local tax penalties. This includes penalties that may apply if the transaction that is the subject of this document is found to lack economic substance or fails to satisfy any other similar rule of law. Pursuant to an engagement, General Terms & Conditions of DTS are applicable to the work performed in the execution of the engagement by DTS. The liability with respect to the an engagement is limited in accordance with the provisions laid down in the General Terms & Conditions.Please note that DTS is not liable in any event for lost profits or any consequential, indirect, punitive, exemplary or special damages. T T DTS NOW F duijn@duijntax.com of 12

Dutch tax treaty overview Q3, 2012

Dutch tax treaty overview Q3, 2012 Hendrik van Duijn DTS Duijn's Tax Solutions Zuidplein 36 (WTC Tower H) 1077 XV Amsterdam The Netherlands T +31 888 387 669 T +31 888 DTS NOW F +31 88 8 387 601 duijn@duijntax.com