Tax Treaty Case Law around the Globe 2013

1. S. 53 Introduction

The Dutch corporate income tax system is based on the residence principle. This means that companies that are tax resident in the Netherlands are taxable for all their income, whether derived from domestic or foreign sources. Non-resident companies, by contrast, are only taxable in the Netherlands to the extent they derive Dutch income, as defined. Dutch income notably consists of “active” income sources located in the Netherlands, such as Dutch branches. Income derived by non-resident companies from “passive” sources of income, such as income from shares or bonds is, in principle, not liable to Dutch corporate income tax. If there is a tax treaty applicable, the Netherlands’ taxation powers to tax non-resident companies may be further restricted.

In practice, the distinction between corporate resident and corporate non-resident taxpayers can provide an incentive for Dutch companies that have ceased their business activities - for example as a result of a sale of their business - to move their corporate place of residence abroad. The return on the remaining assets of such a company - most of the time consisting of cash, portfolio investments and/or shareholder loan ...