New Ruling Policy on Profit Tax for Netherlands Antilles Entities - International Law Office

On October 6 2006 the minister of finance issued a ministerial decree announcing the introduction of a new ruling policy and the withdrawal of the present policy, which was introduced on September 4 2002 and published in Ministerial Decree 5113/RNA. The new decree does not affect the ruling policy for offshore companies under the transitional provisions for offshore companies. The ruling policy for such entities will remain in force until the end of the grandfathering period on December 31 2019.

The EU Code of Conduct Committee considers the present policy's safe harbour rules to be harmful tax competition. Moreover, the policy does not consist of individually determined remunerations, as prescribed by the reports of the Organization for Economic Cooperation and Development. The present ruling policy provides for safe harbour rules for nine categories of activity, namely:

• supporting activities within a group;

• investment portfolio and fund management;

• holding activities;

• financing activities;

• licensing activities;

• branch activities;

• activities involving income which qualifies as informal capital;

• activities involving hybrid financing instruments; and

• certain other financial services.

The safe harbour rules specify the arm's-length remuneration for each of the above activities.

As in the present policy, a 'ruling' is defined in the new policy as a position taken in advance by the tax administration, within the scope of the law, case law and regulations, which applies to the tax consequences arising from the determination of the entire profit made within the context of an international corporation as a result of activities carried out in the Netherlands Antilles. The definition also covers advance agreements concerning the determination of the taxable profit of taxpayers working in the Netherlands Antilles (eg, the method of depreciation) and statements on the assessment of an individual or non-recurring transaction (eg, a contribution of know-how or goodwill).

The present safe harbour rules will be abolished when the decree comes into force. Under the new policy, the arm's-length remuneration in each ruling request must be substantiated and the information used to calculate the remuneration must be submitted to the tax authorities.

In principle, any application for advance confirmation that falls within the scope of the policy may receive approval. However, as under the present ruling policy, no rulings will be issued if this would breach the principle of good faith which the Netherlands Antilles is bound to observe in dealings with its treaty partners.

All rulings will be published (with due consideration given to the confidentiality of the taxpayer's information). As at present, all rulings will be valid for five years.

With regard to informal capital rulings, the new policy states that the Netherlands Antilles may spontaneously issue information to countries with which it has entered into a dual taxation agreement or a tax information exchange agreement.

Existing rulings will be honoured until the end of their duration or until December 31 2008, whichever is earlier. The present ruling policy and models will be withdrawn with effect from January 1 2006. The ministerial decree will enter into force the day after it is published in the Official Gazette, but it is not clear when this will be.

The abolition of the safe harbour rules will make it necessary to determine in each individual case the arm's-length remuneration which must be substantiated by the taxpayer. This may require the taxpayer to conduct research into such remuneration and produce costly transfer pricing reports. However, as in finance conduit situations, such research may be found to result in lower remuneration than the application of existing safe haven rules.

For further information on this topic please contact Emile Steevensz at Loyens & Loeff by telephone (+599 9 434 11 00) or by fax (+599 9 465 15 18) or by email (emile.steevensz@loyensloeff.com).