Netherlands: Interest Conduit Companies

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A Netherlands interest conduit company is a company which intercedes between a borrower and a lender with a view to realizing fiscal advantages on a loan.

As from the tax year 2004, the EU Directive for interest and royalties entered into force. Under the Directive, a 0% withholding tax rate applies for qualifying interest payments between qualifying associated corporations established in the EU. A corporation is considered associated if it has cross holdings of at least 25% or a third corporation has a direct minimum holding of 25% in two other EU corporations.The conditions to be met for this EU exemption are:

• The beneficial owner of the interest is a qualifying corporation of another EU Member State or is a EU permanent establishment of such a corporation; Is considered to be a resident in that Member State (and thus not outside the EU); and
• Is, without exemptions, subject to tax in that Member State.

The Corporate Income Tax regime which came into force in January 2007 introduced some improvements to the taxation of intra-group interest payments. Known as the 'interest box,' the new law subjects the balance of interest proceeds and costs within a group to an effective tax rate of 5%. The interest box scheme is optional, but groups wishing to avail of its provisions must be apply across all companies in the group. However, the Dutch government was unable to fully implement the new regime owing to a European Commission state aid investigation into the legislation. In January 2010, it was announced that the implementation of the 'group interest box' would be postponed.

The European Commission later concluded that, in light of the comments submitted and the modifications introduced by the Dutch authorities, the interest box measure does not constitute state aid as it will apply equally to all companies receiving interest from related companies.

The Dutch government's initial proposals for the 'group interest box' followed a study by the Netherlands Bureau for Economic Policy. The study showed that amending the group interest system would help break a trend which currently encourages the use of borrowed capital. The government also said that the move would decrease the taxation on companies and make the Netherlands a more attractive jurisdiction for companies to establish tax offices and operations in.

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