Decree on dividend withholding tax

On January 27, 2011, a new Dutch decree describing certain aspects of the Dividend Withholding Tax Act regarding the allocation of shares to a PE in the Netherlands was published (the “Decree”). The Decree is applicable as of 28 January 2011.
The Decree clarifies the criteria used by the Dutch tax authorities for the allocation of shares to a permanent establishment (PE) in the Netherlands. This allocation is of relevance for the applicability of the participation exemption and the group taxation regime.

The decree on the attribution of profits to PE is to be used as a starting point for a decision under the new Decree whether shares can be allocated to a PE. Any decisions are to be taken on a case-by-case basis.

Allocation of shares to a PE means that the PE is authorized to carry out all activities related to the purchase, holding, management and transfer of the shares of a company and the exercise of the related competencies. Therefore, the Decree clarifies that an attribution of shares to a PE is only possible if the following cumulative criteria are met:

• a foreign company runs a business in the Netherlands by means of a PE;
• the activities of the PE are carried out by qualified employees, who carry out their activities in and from the Netherlands; and
• a direct relationship exists between the business activities of the PE and the business activities of the company whose shares are allocated to the PE.