30 Dec New documentation requirements from 1st of January 2020
New documentation requirements for companies from 1st of January 2020
30 December, 2019
As per the 1st of January 2020 there will be implemented new Dutch legislation to prevent tax evasion. This legislation is based on an European directive that concerns the prevention of tax evasion through so-called hybrid mismatches (ATAD 2). An important part of this legislation is the new documentation requirements for companies from 1st of January 2020. Hereafter you will read more about this new legislation and the documentation requirements.
What are hybrid mismatches?
Hybrid mismatches are situations in which a tax advantage is reached by making use of the differences between tax systems of countries. Because of the differences in tax systems, companies, permanent establishments or payments can be qualified differently for tax purposes. This can result in a tax benefit. An example of a hybrid mismatch is a payment that is deductible in one country, however not taxed in the country where the payment is received.
The new legislation is aimed to remove the tax advantage of a hybrid mismatch. In the situation that a payment is deductible but the receipt not taxed, the deduction of the payment will not be accepted anymore.
The legislation is only applicable to payments between affiliated parties. In a nutshell, parties are affiliated when there is a direct or indirect shareholding of 25% or more in the receiving party or the paying party. Parties are also affiliated when there is a cooperating group or when a company belongs to the same consolidated group in the financial statements.
In the new legislation, there are also included far-reaching documentation requirements. Based on these provisions, companies are obliged to include certain information in their administrations that proves that a payment, a deemed payment, an expense or a loss meets the new legislation. This means that a company will have to administer if and why a payment (or deemed payment, expense or loss) can be deducted in the Netherlands. This can by administered by including documents in the administration that proves that the payment is taxed in the other (receiving) county and that the payment is not also deducted by another group company.
Please note that these documentation requirements do apply to every payment, expense or loss that a Dutch company wants to deduct, regardless whether this payment is done to a Dutch or a foreign company.
The new documentation requirements are far-reaching and cause an extensive investigation obligation for companies. As soon as the Dutch tax authorities are suspecting that a payment cannot be deducted based on this hybrid mismatch legislation, they can request the company to prove that the payment is deductible. Generally, this information will have to be provided to the Dutch tax authorities within six weeks.
Would you like to know more about the new legislation and the accompanying documentation requirements? Our experts will be happy to assist you. Please contact Peter-Paul Derks.