October 2nd, 2019
As a result of the discussion on implementing BEPS internationally; the Dutch government will implement new regulations regarding the conditions that create a permanent establishment. The implementation is aimed at tackling common tax avoidance strategies worldwide.
It is important to realize that the existence of a permanent establishment (PE) may lead to a material increase of your tax exposure in the Netherlands. The new regulations expand the possibilities for the Netherlands to tax foreign enterprises, especially when they have employees assigned to the Netherlands.
The key changes to a permanent establishment with regards to employees working in the Netherlands can be summarised as follows:
Dependent agent PE
At this moment a PE arises when an agent is acting on behalf of the company and habitually conclude contracts in the name of the company. This definition will expand to situations in which an agent habitually plays the principal role leading to the conclusion of contracts that are then routinely concluded without material modification by the company. In other words, when the employee plays part in the conclusion of a contract, you should be aware of your tax exposure in the Netherlands.
Impact of the changes
In most cases a PE does not automatically mean paying more tax in the Netherlands. In most cases, remuneration based on costs incurred by the PE plus a small “cost plus” cross charge should be appropriate, though there may be situations in which remuneration based on commission would be more suitable.
The new rules could trigger higher compliance costs and administrative burden for the businesses.
Review the activities
There is an increased risk of a dispute with the Dutch tax office with regard to the presence of a creates a permanent establishment or the selection of the appropriate method of profit attribution to the PE. In order to avoid this uncertainty and increased compliance costs we would recommend to prepare for the new regulations and review the existing structures. In particular you should analyse the activities performed by the employees in the Netherlands.
If you require further information, please contact firstname.lastname@example.org or any of our other tax advisors by calling + 31 (0)20 262 4300