Substance in the Netherlands
For B.V. to benefit from the Dutch treaty network it must be ensured that B.V. is considered a tax resident in the Netherlands. Moreover, the latter normally avoids that a foreign jurisdiction could take the position that B.V. is resident in that local jurisdiction. In this respect and due to its incorporation under Dutch law, from a Dutch domestic perspective B.V. is always considered to be a Dutch tax resident. Therefore, any discussion on dual residency must be avoided as it could be a lengthy and costly process before a final judgment is obtained.
According to the generally applied concept of tax residency as defined in the OECD model tax convention, a company is a resident of the state from where it is managed and controlled. In other words, where its “place of effective management” is. The place of effective management is the place where the key decisions of the entity are made. Basically, it is the place where the strategic decisions of the entity are made, e.g. investment decisions, the placement of units, the distribution policy and every other decision that have a major impact on the entity. Although the facts and circumstances may differ for each case, based on the following key considerations, not exhaustive, it may be determined whether from a Dutch tax perspective B.V. should be considered a Dutch tax resident:
- The annual accounts of B.V. should be established and adopted in the Netherlands. The books and records should be kept in the Netherlands;
- Auditors and legal solicitors should be retained in the Netherlands;
- B.V.’s principal bank accounts and books need to be kept in the Netherlands;
- At least 50% of the members of the board of directors should be Dutch resident or domiciled in the Netherlands (though not mandatory);
- Major decisions relating to B.V. should be taken in the Netherlands. The decisions should be clearly addressed in board minutes. Board meetings must be held regularly, preferably at least every 4-6 months in the Netherlands and every time an important decision has to be made.
Although it is important that the items listed above are carefully and truly implemented, the points of directorship and major decisions being taken in the Netherlands may be the most significant ones but should not be considered on a standalone basis.