Tax Treaty Case Law around the Globe 2019

S. 1341. Introduction

One of the implications of the ATAD1 Directive is that the Netherlands formally introduced CFC legislation as of 2019. The Dutch legislature chose to effect a “generous” implementation of the Directive which basically implies that both (optional) models of the Directive have found their way into the Dutch Corporate Income Tax Act (CITA). For a state that has always adhered to the principles of capital import neutrality, the introduction of CFC legislation amounts to a major change of international tax policy. It should not be forgotten however that traces of CFC rules have been present in the CITA for a longer period of time. Since 1990 there has been a specific CFC-like provision which establishes that a shareholder should annually value qualifying shareholdings at fair market value. Moreover, the application of an indirect tax credit to income from specific portfolio shareholdings also has such an effect.

This chapter will discuss a 2018 ruling of the Dutch Supreme Court (Hoge Raad, HR). The central transaction of this case is an interest-free loan that was granted by an Irish resident company to its associated – sister – company that was also a resident of Ireland....