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Netherlands: Unilateral Decree on Avoidance of Double Taxation Amended Due to Introduction of New Tax on Banks

(Aug. 30, 2012) A decree amending the 2001 Unilateral Decree on the Avoidance of Taxation (Besluit voorkoming dubbele belasting 2001, Bvdb 2001, hereinafter Unilateral Decree) was published in the Official Gazette of the Kingdom of the Netherlands on August 17, 2012. The amendment was adopted pursuant to the introduction of a new bank tax in the Netherlands, scheduled to take effect on October 1, in order to prevent the imposition of double bank taxes in cross-border situations. (René Offermanns, Netherlands: Decree to Amend 2001 Unilateral Decree on the Avoidance of Double Taxation Pursuant to Introduction of Bank Tax Published, TAX NEWS SERVICE (Aug. 21, 2012), International Bureau of Fiscal Documentation online subscription database; Amendment to Double Taxation Avoidance Decree 2001 Following Introduction of the Bank Tax, DELOITTE TAX NEWS INTERNATIONAL (Aug. 23, 2012).)

As one tax newsletter points out, the prevention of such double taxation can usually be achieved by relying on existing tax treaties, but because “the bank tax is a new type of tax” that “also substantially differs from other taxes … the Netherlands will implement a unilateral regulation in the Double Taxation Avoidance Decree 2001.” (Amendment to Double Taxation Avoidance Decree 2001 Following Introduction of the Bank Tax, supra.)

The Bank Tax Law (Wet bankenbelasting) of July 12, 2012, was adopted as part of the Dutch government's plan to protect the financial stability of the Netherlands, complementing measures previously taken after the 2008 global financial crisis to strengthen the financial system and manage the risks run by banks. Those measures include tightened capital requirements, intended to strengthen bank solvency, imposed under the Basel III international regulatory framework for banks and, to secure deposits, the ex ante financing (payment of contributions in advance) of the Dutch Deposit Guarantee System. (Jean-Paul van den Berg & Johan Vrolijk, Netherlands Details Bank Tax Proposal 65:2 TAX NOTES INTERNATIONAL (Jan. 9, 2012); Ernest Mayer Swantee et al., Netherlands: Proposals for Ex Ante Financing of the Deposit Guarantee System, DEBRAUW NETHERLANDS UPDATE – SEPTEMBER 2011 (Sept. 16, 2011).) More specifically, the purposes of the new tax, to be levied on the uncovered debts of banks, are to: “ensure that the banking sector contributes to the cost of stabilization; stimulate long-term financing; and discourage excessive bonuses for the board members of Dutch banks.” (van den Berg & Vrolijk, supra; see also Wet van 12 juli 2012 tot invoering van een bankenbelasting (Wet bankenbelasting) [Law of 12 July 2012 for introduction of a bank tax (Bank Tax Law)] 325 STAATSBLAD (July 18, 2012).)

Under the amendment to the Unilateral Decree, the scope of the Decree is expanded to cover the bank tax, by addition of a new item “g” under article 1, paragraph 1 and a new chapter, “VIa Bank Tax,” comprising articles 53-55, after article 52. (Besluit van 11 augustus 2012 tot wijziging van het Besluit voorkoming dubbelebelasting 2001 in verband met de invoering van een bankenbelasting [Decree of 11 August 2012 for amendment of the Decree on avoidance of double taxation 2001 in the context of the introduction of a bank tax] [with explanatory memorandum appended] (hereinafter Decree of 11 August 2012), 365 STAATSBLAD (Aug. 17, 2012).)

The basis for the amendments is the bilateral treaties concluded by other countries for avoidance of double bank tax, in which a reduction of bank tax is granted by the country where a subsidiary or branch office of the bank is established. Such a model, the explanatory memorandum to the amendment decree points out, complements the Organisation for Economic Co-operation and Development (OECD) Model Tax Convention on Income and on Capital. The amendments only apply to subsidiaries or branches of foreign banks established in the Netherlands; they do not cover Dutch-based banks with subsidiaries or branches abroad. (Id.; OECD Model Tax Convention on Income and on Capital – An Overview of Available Products (last visited Aug. 28, 2012).)

The amending measure is also based on the assumption of reciprocity. Thus, the Netherlands will grant a reduction of the foreign bank tax to foreign bank subsidiaries and branch offices if the other country grants a corresponding credit for bank tax levied in the Netherlands in the opposite situation. (Amendment to Double Taxation Avoidance Decree 2001 Following Introduction of the Bank Tax, supra.) Under the amendments, if the assets or liabilities of the Dutch-based subsidiary or branch office are included in the foreign parent company's taxable base for purposes of the imposition of a tax comparable to the Dutch bank tax, the Netherlands will grant a credit in an amount equal to the comparable foreign tax amount, but the reduction is not to exceed the amount of the Dutch bank tax due. (Offermans, supra.)

A future decree will set forth rules on the allocation of foreign tax to the assets and liabilities of the foreign subsidiary or branch office based in the Netherlands. It will also specify situations in which the reciprocity principle is deemed to be met, to avoid, the explanatory memorandum points out, any ambiguity that might arise as a result of the introduction of bank taxes in many other countries being only in the early stages. (Id.; Decree of 11 August 2012, supra.)

The amendment decree will enter into force on a date yet to be determined by Royal Decree. (Amendment to Double Taxation Avoidance Decree 2001 Following Introduction of the Bank Tax, supra.)