The Dutch Tax and M&A Climate. Jimmy Ji and Harold Kluijtmans

Transcriptie

1 The Dutch Tax and M&A Climate Jimmy Ji and Harold Kluijtmans 28 June 2011

2 Agenda 1. Innovative activities in or via the Netherlands 2. Dutch Transfer Pricing and Ruling Practice 3. Recent Chinese M&A in the Netherlands and successful strategy 2

3 Innovative activities in or via the Netherlands 3

4 1. Innovation box in brief Why What How 1 Analyze the innovative character of the company 20% Savings 2 Calculate the savings 3 Ruling request Effective tax rate 5% Innovation box rate 5% (10% in ) No amount of maximum profits Available for all business sectors Development costs still deductible at 25% For all types of innovations, e.g. new inventions, improvement/development of a product S&O certificate or patent self developed Tax consequences are normally agreed upon in a ruling KPMG Meijburg & Co has substantial experience in this field with over 30 rulings negotiated with the Dutch tax authorities. 4

5 2. Important considerations summarized 1. Effective tax rate of only 5% on innovation box results, to be achieved by a reduction of the taxable base. 2. Applicable on all types of results, provided the results are attributable to a qualifying innovation. 3. Losses are deductible against the 25% tax rate instead of the effective rate of 5%. The losses should however be recaptured before the future profits can apply for the effective tax rate of 5%. 4. Software development can also qualify for the innovation box. 5. In certain cases the innovation box may also apply to outsourced developments. 5

6 3. Qualifying innovation / qualifying results? Qualifying innovations Self developed (i.e. for own risk and account) innovations: for which a patent has been obtained; to which an S&O certificate may be allocated. Brands, logo s and similar assets are explicitly excluded for innovation box purposes. For which results? Various types of results can apply for the innovation box, such as: royalties / licensing income a part of the regular (sales) profit in connection with self developed products or solutions of the company cost savings profit upon the sale of the developed asset. 6

7 4. Innovation Box - example Tax 80 Profit from entrepreneurial functions + profit from innovation 40 Income for Innovation box Innovation box 2 (40 * 5%) EBT Income at normal rate Normal tax 15 (60*25%) 20 Routine functions Tax 17 Saving 8 Tax KPMG Meijburg & Co, The Netherlands. All rights reserved 7

8 5. Payroll tax incentives for innovative activities Also from a payroll tax perspective there are incentives to carry our R&D work in the Netherlands: the remittance reduction for R&D work The remittance reduction is a discount on payroll tax and social securities, to be requested for per R&D project (maximum: 3 times a year) In order to qualify for this incentive, a S&O certificate is required (which is also an entrance ticket for the innovation box) Several types of R&D qualify for the remittance reduction (e.g. scientific research, developments of products, technical research) Amount of remittance reduction (2011): 50% of the first EUR 220,000 of the withholding agent's R&D payroll; 18% of the remaining R&D payroll; There is a maximum of EUR 14,000,000 per calendar year remittance reduction for each withholding agent or fiscal unity R&D payroll to be calculated by multiplying the R&D hourly rate by the R&D hours that have been allocated 8

9 6. Some other considerations The Netherlands does not levy royalty withholding tax on outbound royalty payments Due to the large treaty network and the application of EU Directives withholding tax on inbound royalty payments to be reduced in most cases Costs with respect to self developed intangible assets can be deducted at once for Dutch corporate income tax purposes Possibilities to conclude informal capital rulings in case R&D activities are to be transferred to the Netherlands 9

10 Dutch Transfer Pricing and Ruling Practice 10

11 1. TP approach Dutch Tax Authorities Arm s length principle Prices between related parties should be the same as they would have been, had the parties to the transaction not been related to each other Legal basis: Dutch legislation: Arm s length principle and documentation requirements in section 8b CITA Dutch local policy on TP OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations Dutch APA-practice: Certainty in advance on TP matters 11

12 2. Tax audit policy on Transfer Pricing In general a structural risk-based approach TP audits are conducted by local tax officers in conjunction with their local TP specialists Recent general focus of governments and their tax authorities on transfer pricing, including specific focus on limited risk distributors 12

13 3. Dispute Resolution Mutual Agreement Procedures ( MAP ) MAP article in tax conventions (e.g. China/Taiwan Netherlands) allows the competent authorities of the contracting states to interact with the intent to resolve international tax disputes Note that the MAP article does not compel competent authorities actually to reach an agreement! European Arbitration convention The Convention provides for the elimination of double taxation by agreement between the contracting states including, if necessary, by reference to the opinion of an independent advisory body. Mediation 13

14 4. Mitigating TP exposure Having proper TP documentation in place no reversal of the burden of proof on basis of section 8b CITA Having intercompany contracts in place Adhering to these contracts Concluding an APA with the tax authorities in order to obtain certainty in advance on TP-consequences of a transaction 14

15 5. Case study Limited Risk Distributor China/ Taiwan the Netherlands Europe Principal Limited Risk distributor Customers Main risks Marketing Price Volume Warranty Inventory Credit Minor risks Price Volume 15

16 5. Case study Limited Risk Distributor China/ Taiwan the Netherlands Europe Characterization: Entrepreneur Routine distributor Customer Remuneration: Residual profit / loss % of sales routine remuneration 16

17 5. Case study Limited Risk Distributor What we often see in practice in Europe China/ Taiwan the Netherlands Europe Entrepreneur Routine distributor Customer Cost plus mark-up Residual profit / loss 17

18 Recent Chinese M&A cases in the Netherlands and successful strategy 18

19 Recent Chinese M&As in the Netherlands Points of interest on Chinese M&As cases in the Netherlands Sectors / industries which are of strategic interest to the PRC Encouraged by Chinese government stimulates Chinese companies focus on revenue synergies Chinese companies are reluctant to transfer R&D functions to the PRC ( Made in Europe is important) Chinese companies are willing to invest in R&D Some key learning points Cross border M&A is new to Chinese companies Chinese companies find it difficult to act under time pressure in a competitive outbound M&A process 19

20 Successful M&A strategy in the Netherlands Different dynamics, legal frameworks and business culture Low acquisition price distressed assets, high turnaround costs Local management with sufficient responsibilities / authority is a must M&A processes in Europe tend to be structured and run by M&A professionals Cope with a tight time table and deliver as agreed Approvals (incl. government) and financing must be actively managed Sellers must consider Buyer as reliable business partner Public opinion on large deals and well know brands has to be managed 20

21 Contacts Jimmy Ji KPMG Accountants N.V. Amstelveen The Netherlands tel: +31 (0) mobile: +31 (0) ji. Harold H.L. Kluijtmans KPMG Meijburg & Co Eindhoven The Netherlands tel: +31 (0) fax: +31 (0) mobile: +31 (0)

22 All activities performed and all services rendered by KPMG Meijburg & Co are subject to its general terms and conditions, filed with the Amsterdam Chamber of Commerce. KPMG Meijburg & Co, tax lawyers, is an association of limited liability companies under Netherlands law and is a member of KPMG International, a Swiss cooperative. The general terms and conditions are available on the KPMG Meijburg & Co website ( and will be supplied upon request.