This is an HTML version of an attachment to the Freedom of Information request 'Code of Conduct Group on business taxation - meeting background documents'.


Ref. Ares(2016)3151599 - 01/07/2016
doc 8


Informal 
Capital 
Ruling 
      NL 
 
Conditions Attached 
 
This ruling practice is based on Supreme Court decisions of 3 April 1957 
(BNB 1957/165) and 31 May 1978 (BNB 1978/252) where the Dutch Tax 
Administration was ordered to accept the informal capital concept in respect 
of interest free loans between related parties. The ruling may be granted to 
entities liable to Dutch taxation and it is valid for a period of 4 years 
(renewable).  
 
Under Netherlands tax law formal contributions to, or withdrawals from, equity 
capital do not constitute taxable profit. Similarly, informal contributions to, or 
withdrawals from, a Dutch company’s equity capital are not contributing to or 
deductible from taxable corporate income. The informal capital ruling is 
concerned with interest free loans obtained from the parent company.  Such a 
ruling ascertains the amount of informal capital contribution. 
 
A combination of a cost-plus ruling and an informal capital ruling is not 
possible. Where there are separate, different activities involving one taxpayer, 
one activity might require a cost-plus approach, the other an informal capital 
approach.      
 
Tax Benefits 
 
The taxable profit of the holder of the informal capital ruling is adjusted by the 
amount of the informal capital contribution, i.e. the ruling allows a deduction 
for deemed payments, for the most part, of interest or rent. The informal 
capital concept might also apply to other items (for example to the transfer of 
intangible assets such as goodwill).  This in respect of benefits provided by 
related companies at less than arm’s length prices. The adjusted profit is 
taxed at the standard corporate income tax rate of 35%. The informal capital 
contribution is subject to a capital tax at a rate of 1%. 
 
In accordance with the general principle outlined above, under Netherlands 
tax law the taxable profit of the related party that had made the informal 
capital contribution, is adjusted with a corresponding amount. In cross-border 
situations a corresponding adjustment of the taxable profit will depend on the 
system of the country involved.