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The Dutch Intellectual Property (IP) Tax Planning Through The Netherlands
The Netherlands can in no way be considered an offshore finance centre. Corporate rates of tax are high: 25% tax is levied on worldwide income. However, concessionary treatment of some forms of income coupled with the extremely wide network of double taxation treaties signed by The Netherlands (over 90 taxation treaties have currently been concluded including treaties with most of the major developed nations of the world) provide outstanding opportunities to use Netherlands corporations in structuring international financial transactions. Netherlands companies may be advantageously put to the following uses.
Dutch Holding Companies
Subject to certain conditions a resident Dutch company may qualify for the “participation exemption” which exempts such companies from corporate tax on income and capital gains resulting from the holding or disposal of qualifying shareholdings.
Dutch Licensing Companies
The Dutch licensing company is a frequently used and reliable tax planning instrument.
There are many companies in the Netherlands which main activity is to receive royalties from or on behalf of group companies. The main reason to use the Netherlands as the location for such a “group licensing company” is the favourable Dutch tax regime for licensing activities (tax ruling) and the excellent legal and financial infrastructure.
We have extensive knowledge and expertise in the area of Dutch licensing companies and we are gladly prepared to advice you on this subject or to guide you to other professionals who can help you in other specialized areas (like international lawyers, accountants or trust companies).
The Activities of a Dutch Licensing Company
The activities of a Dutch licensing company primarily consist of receiving royalties from or on behalf of group companies.
There are no virtually no limitations with regard to the activities of a Dutch licensing company. The licensing activities can be combined with holding activities, financing activities or actual operating activities, like trading or manufacturing.
The centralization of activities in a Dutch licensing company will make the structure more robust and resistant to the international tendency to deny tax advantages to purely tax driven vehicles. We refer also to the page The Dutch holding company plus.
The activities of the licensing company can differ depending on the purpose of the structure. Roughly speaking one can distinguish the Dutch royalty conduit company and the Dutch IP company.
The Dutch Royalty Conduit Company
The main activity of the Dutch royalty conduit company consists of receiving royalties on behalf of group companies.
The Dutch company is typically not the owner of intellectual property rights, but it only obtains a license from a group company which it then sub-licenses to other parties.
The owner of the IP is a group company. In order to avoid a high tax burden at the level of the owner of the IP, it is quite common that the company which owns the IP (and thus receives royalties from the Dutch company) is established in a jurisdiction which levies no or only few taxes over the IP income (tax haven). The Dutch tax system allows an easy transit of royalties to a tax haven company.
The ultimate licensee can be either a non-related party or a group company.
The primary motive for this structure is the reduction of foreign withholding taxes by virtue of applicable tax treaties or the EU Directive for Interest and Royalties.
The Dutch Patent Box
As from 1 January 2007, Dutch tax law provides for a special tax regime for Research & Development activities in relation to patents.
This optional regime can only be applied for by the taxpayer in connection to income derived from self-developed intangible assets, including plant breeder’s rights, which are patented in The Netherlands or abroad (but according to Dutch standards) and which are capitalized after 31 December 2006. As of 1 January 2008 this regime will also apply to so called R&D intangibles (“Speur- en Ontwikkelingswerk activa”), originated from a so-called R&D project for which a “R&D declaration” has been obtained. Self-developed trademarks, logos and other similar assets are excluded from the patent box.
An effective tax rate of 10% is achieved by using the following formula: 10/25.5 (regular corporate income tax rate) of the total amount of net earnings stemming from the intangible asset that has been allocated to the patent box is recognized as taxable profit which is taxed at the regular corporate income tax rate.
The total amount of net earnings from intangibles that could be taxed at the low rate cannot exceed a threshold of four times the total amount of the capitalized development costs of the intangible assets allocated to the patent box. Note that for budgetary reasons the amount of net earnings derived from R&D intangibles is capped at EUR 400,000 per year.
There is no withholding tax on royalty payments made by a Dutch company to a non-resident and, as with interest payments, many of the tax treaties signed by The Netherlands allow foreign companies to make royalty payments to a Netherlands company without a requirement to withhold tax or subject to only a reduced rate of withholding tax. Where the Dutch company is related to the payee or payer then a margin on basis of a sliding scale ranging from 2%-7% (6% for lump sum payments and film royalties) must be maintained between the royalties received and the expenses paid out. The amount of this margin would be taxable at normal Dutch rates but the balance of the royalties received will escape Dutch taxation.
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