On January 25, 2016 the Dutch State Secretary for Finance sent a letter to Dutch Parliament with respect to the fact that at the end of 2015 Brazil decided to put the Netherlands back on its so-called grey list.

On December 18, 2015 Brazil put the Netherlands back on the list of countries with a privileged tax regime for holding companies (the so-called grey list). Per his letter the Dutch State Secretary informs the Dutch Parliament regarding this development and the actions the Netherlands is intending to take against the fact that the Netherlands has been put back on the grey list.

The State Secretary starts his letter with providing some background information with respect to the Brazilian measures. In this section he a.o. discusses what the Brazilians consider to be a tax favored jurisdiction. He also provides a high level overview of the consequences that are connected to be a jurisdiction being considered a tax favored jurisdiction by the Brazilian authorities. Subsequently he discusses what the Brazilians consider to be a privileged tax regime and the consequences of that.

In the next section of his letter the State Secretary writes about the placing of the Netherlands on the list, the history and the discussions that have taken place between the Dutch and the Brazilian authorities since 2010.

Then the State Secretary discusses the consequences of being put on the grey list. In this respect the State Secertary states:

“The fact that the Netherlands has been put on the grey list has consequences for Dutch companies that are doing business in Brazil. These a.o. consist out of different more strict transfer pricing regulations being applied and tighter control by regulators. Furthermore the fact that the Netherlands has been put on the grey list also influences the Dutch investment climate for Brazilian companies that invest in or via the Netherlands. The consolidation rules for the application of the (Brazilian) CFC-regulations for example will not apply in case (foreign) participations are held via Dutch holding company. This can lead to higher taxes being due in Brazil.”

Actions to be taken

The Netherlands is of the opinion unjustifiably put on the list. As noted earlier the Netherlands does not have a special regime that applies to holding companies. Thereby the Dutch tax system, including the participation exemption, is internationally accepted and comparable with countries that have not been put on the list like Belgium, Ireland, Luxembourg and the UK. Furthermore the Netherlands has actively participated in the BEPS-project to combat tax avoidance and tax evasion, undertook attempts to modernize the existing DTA with Brazil and to address specific problems together with Brazil and jointly find a solution for these problems.

Because the Netherlands is of the opinion that it does not belong to the grey list, the Dutch State Secretary will formally request Brazil to undue the definite putting of The Netherlands on the grey list. Furthermore the State Secretary will ask Brazil to explain the Brazilian interpretation of the criterion of holding companies without substantial economic activities. Next to that the State Secretary will again request Brazil to modernize the existing DTA, also to address the outcomes of the BEPS-project. Since 2002 the Netherlands has regularly approached Brazil with the proposal to amend the existing DTA, which is stemming from 1990. A.o. by including anti-abuse clauses and the provisions regarding the exchange of information. The Dutch Secretary of State seems to be of the opinion that such an amendment of the DTA would be a better instrument to target potential problems with Dutch companies. The Dutch State Secretary concludes by stating that as he understands it an internal moratorium on treaty negotiations in Brazil this has still not lead to completed negotiations.

Click here to be forwarded to the letter that the Dutch Secretary for Finance sent to the Dutch Parliament on January 25, 2016 (the letter is in Dutch).

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