Recent experience with the Dutch ruling process

The Dutch cooperative is increasingly popular with Canadian tax planners. It is quick and easy to form, requiring a minimum of formal procedural hokum, very flexible and can be designed to meet just about any objective. The main advantage of a coop, over the Dutch BV, is that distributions are not subject to a domestic withholding tax. For this reason, coops are most often used as a holding company for European investment, although they have many other uses.

It is standard practice to obtain a ruling from the Dutch tax authorities confirming the no-withholding tax treatment. We have obtained many such rulings in the past without issues.

Recently, however, we have had difficulty in obtaining a ruling in what appeared to be a perfectly normal situation. After many information requests and much to-ing and fro-ing with the Dutch officials it finally came out that they were concerned that the coop was being misused by private interests. As a result, it is no longer a given that a ruling will be obtained without more ado when the Canadian corporate shareholder is privately held. In this case, you can expect the Dutch authorities to require the immediate parent of the coop to have actual employees. It is not sufficient that another member of the Canadian group with the employees carry out activities on behalf of the parent and cross-charge. At this point, it is still not clear what level of employment the Dutch authorities will find acceptable.