NETHERLANDS
by
Prof dr. J. Zwemmer & dr. F. Sonneveldt
1. COMPARATIVE (DOMESTIC) TAX LAW
1.1.
Overview
a. In the Netherlands three taxes are levied under the 1956 Inheritance and Gift
Tax Act. These three taxes are inheritance tax, gift tax and transfer tax.
b. The taxes which are levied under the 1956 Inheritance and Gift Tax Act may
be characterized as acquisition taxes. Both the proximity of kinship between
the beneficiary and the deceased or the donor and the size of the acquisition are
relevant to the calculation of the taxes. In Dutch law marriage does not create
consanguinity between the spouses. The marital status may, however, be of
importance in determining the rate and available exemptions. Cohabitants who
have lived together for more than five years and registered partners may in
general benefit from the same tax advantages as spouses.
c. The official names of the taxes levied under the 1956 Inheritance and Gift Tax
Act (Successiewet 1956) are successierecht (inheritance tax), schenkingsrecht
(gift tax) and recht van overgang (transfer tax).
1.2.
Criteria for tax liability
a. Residence
Dutch inheritance tax is due on the value that is acquired by an individual or a
legal entity as a result of the death of a person, who, at the time of his death
was a resident of the Netherlands. Gift tax is due on the value of all that is
acquired as a result of a gift from a person who or a legal entity which at the
time of the making of the gift was a resident of the Netherlands.
Extended residence (one year rule)
A gift made by someone who was a resident of the Netherlands less than a year
ago will be subject to gift tax.
Nationality (ten year rule)
A Dutch national who lives in the Netherlands and who dies or makes a gift
within ten years of leaving the Netherlands and of taking up residence
elsewhere, is deemed to have his residence in the Netherlands at the time of his
death or of the making of the gift, provided his is still a Dutch national at that
particular moment.
Situs
Transfer tax is due on the value of certain property located in the Netherlands,
called situs property, acquired as a result of the death of a person or by gift
from someone who at the time of the gift or his death was not a resident of the
Netherlands.
b. The Netherlands imposes a gift and inheritance tax on the basis of the donor’s
or deceased’s fiscal residence. The nationality and residence of the heir, legatee
and donee are irrelevant. Where a person or a legal entity resides depends on
all relevant circumstances. As relevant circumstances in deciding the place of
residence of an individual may be mentioned nationality, residence of the
family of the person, place where children go to school, place of banking,
registration in the (parish) register, place of work, maintaining the dwelling
house for own use and the duration of residence elsewhere.
c. The application of the residence and nationality criteria give rise to an
unlimited tax liability. Situs creates a limited tax liability. The assets which are
subject to Dutch transfer tax are the same assets with regard to which a nonresident is subject to Dutch net wealth tax. This includes the following:
- business assets attributable to a Dutch permanent establishment;
- property rights to such an enterprise other than the rights of a
shareholder;
- immovable property located in the Netherlands or rights in rem to such
property which does not form part of an enterprise;
- profit-sharing rights – not forming part of an enterprise – with regard to
an enterprise, the place of effective management of which is situated in
the Netherlands, unless those rights are in the form of securities or
originate from employment.
In calculating the value of the above mentioned assets the following liabilities
may be deducted:
- debt claims forming part of a domestic enterprise, including debts
originating from joint entitlement, other than as a shareholder, to such
an enterprise;
- debt claims secured by mortgage on immovable property located in the
Netherlands or on rights to which the immovable property is subjected,
as far as interest and expenditure pertaining to those debt claims may be
deducted from income for Dutch individual income tax purposes in
calculating the gross income of a non-resident individual.
1.3. Tax avoidance
Inheritance tax is not only due with regard to assets acquired by virtue of inheritance
according to the Dutch Civil Code. There are a number of provisions in the Inheritance and
Gift Tax Act 1956 on the basis of which certain acquisitions, while not originating from an
estate, are deemed to be acquired by virtue of inheritance and thus are taxable acquisitions.
These fictitious acquisitions were introduced by the legislature to combat tax avoidance. To
apply these provisions it is not necessary for the tax authorities to prove that tax avoidance
was the governing motive for the taxpayer. Below we will discuss the most important
fictitious acquisitions.
Transformation in usufruct or periodic payment
Everything acquired at the expense of a deceased’s net wealth as a result of a transaction to
which he was a party, will be deemed to be acquired by virtue of inheritance.
Gifts made within 180 days of death
A gift made within 180 days prior to the death of a Dutch resident, is deemed to be acquired
by virtue of inheritance. This may result in a higher amount of tax due to the progressive
system.
Life insurance agreements
All that is acquired as a result of or after the death of a person by virtue of a life insurance
agreement – accident insurance included – or by virtue of a contract for the benefit of a third
party, is regarded as an acquisition by virtue of inheritance, unless the payments which were
made in the past to acquire the life insurance agreement were not due to the insurance
company by the deceased.
Other fictitious acquisitions exist with regard to the renunciation of the matrimonial
community property, remainder clauses, assignment clauses and takeover clauses,
renunciation of a limited right, certain transactions which are employed to evade payment of
transfer tax and foundations.
1.4. Valuation and exclusions
a. If no special rule applies, property – for purposes of the taxes levied under the
Inheritance and Gift Tax Act 1956 – is assessed at its market value at the time
of the acquisition. This is the value that would be attached to the property by a
third party. Fair market value should be understood in an objective sense; it is
defined as the price which a willing buyer would pay a willing seller for
property, neither being under any compulsion to buy or sell and both having
reasonable knowledge of relevant facts. In some situations the destination of
the property that is acquired decreases its value. Some examples are the
dwelling house, rented real estate, some qualified country estates, acquisition
of agricultural land by (grand)children who continue the farming business.
Under certain conditions the rented value of this land may be used.
Fideicommissary substitutions
In case of fideicommissary substitution the beneficiary acquires the property
under the obligation to preserve the acquired property for the benefit of a
second beneficiary indicated by the testator or donor, or to transfer what is left
of it (fideicommissum de residuo) at a certain moment, most commonly at the
time of his death, to that second beneficiary. The obligation, however, to
preserve the property as mentioned above will not be taken into account as a
charge diminishing the value of the acquired property. So fideicommissary
substitutions will be appraised at the uncharged value of the property. If the
second beneficiary acquires the property upon the death of the first beneficiary,
the former is considered to have acquired it from the testator or donor, which
means that the proximity of kinship between the second beneficiary and the
testator or donor is relevant in determining the applicable rate.
Shares
An official share market list is published every week. Shares which are
mentioned in that list will have to be taken into account at the value according
to this list. There is, however, no official list for shares which are not
marketable. In the case of unmarketable bonds the value of the bond can be set
at the value of the claim. More difficult is the valuation of shares of a family
corporation, because of the fact that there is no official market for these shares.
On the basis of case law with respect to the valuation of these shares the
following notions may be of importance:
-
the value expressed in the equity of the corporation;
the value relating to the earning capacity of the corporation;
the value relating to the return capacity of the corporation;
the liquidation value, which is the amount that would be paid on the shares
in case of liquidation.
The value of family company shares has more than once been the subject of case
law. The main rules which apply for the valuation of family corporation shares are:
-
a majority shareholding is valued at the equity of the corporation corrected
by the earning capacity of the corporation;
a minority shareholding is valued at the equity of the corporation corrected
by the return capacity of the corporation;
the liquidation value is the value that is used when a corporation will be
liquidated. It is also the absolute minimum value for shares of a
corporation which will not be liquidated yet.
A reduction of 25% of the inheritance or gift tax may be obtained in certain cases.
Dwelling house
The value of rented real estate depends on the duration of the rental agreement and
the price. Knowing how well a tenant is protected in the Dutch Civil Code, this is a
logical – and generally accepted – rule of valuation.
There was, however, disagreement about the valuation of the dwelling house in
situations in which certain relatives of the deceased, who were living together with
the deceased, would continue living in this house after his death. Until 1985
guidelines issued by the Dutch Parliamentary Undersecretary supplied rules for
valuation in this situation. The decreased value depended, among other relevant
elements, on the expected term of occupancy, the age of the occupants and the
consanguinity between the deceased and the occupants.
As of 1985 the Inheritance and Gift Tax Act 1956 contains a provision which took
away the uncertainty as a result of the guidelines. This provision states that a
dwelling house which is acquired by certain relatives may, for purposes of
inheritance and gift tax, be valued at 60% of its free market value. A dwelling
house in the meaning of the Inheritance and Gift Tax Act 1956 is a (part of a)
building – which is not used for a business – which was available as main place of
living for the deceased or the donor and at least one of his relatives. Qualifying
relatives are the spouse of the deceased or the donor, his descendants in straight
line or collaterals up to the second degree and certain qualified cohabitants.
If at least one of these qualifying relatives was living together with the deceased or
donor, the valuation of 60% of the free market value may also be applied by the
other qualifying relatives who were not living together with him. For the
application of this provision the intention of this relative to continue living in the
house is irrelevant.
Periodic payments
The value of periodic payments depending on the life of a person is set at the
annual amount of the payments multiplied by a factor related to the age of the
person on whose life the payment depends. Specific methods apply to periodic
payments for a fixed period of time which do not depend on the life of a person.
Usufruct
In the Dutch Civil Code usufruct is defined as a limited right which gives a right to
use property belonging to another and to enjoy the fruits thereof. Under the
Inheritance and Gift Tax Act 1956 usufruct is very broadly defined. It has the
meaning of the use of an asset without a consideration or at too low a price. If a
rental agreement is concluded at a price which is lower than the fair market value
the lessor may under the Inheritance and Gift Tax Act 1956 be regarded as a
usufructuary.
The annual income of a usufruct is fixed at 6%. The real income and the health of
the usufructuary do not affect this figure. To determine the value of a usufruct the
annual income which is set at 6% has to be capitalized according to the rules for a
periodic payment.
Assets of an enterprise
Assets of an enterprise are taken into account at a ‘going concern’ value. This is
the price a third party with the intention to continue the enterprise would be
willing to pay for it. In this respect the provisions of the Inheritance and Gift Tax
Act 1956 – which do not only apply to assets of an enterprise – provide that assets
which can be seen as a unity will be valued as such. Goodwill, however, which has
not yet been realized, will not be taken into account. A reduction of 25% of
inheritance or gift tax may be obtained in certain cases.
b.
Qualified country estates may, if certain conditions are met, be excluded from taxation.
1.5. Rates and tax-free base amounts (reliefs)
a. +b.
Part of the taxable
acquisition
grandchildren
If it is acquired by:
I. surviving
II. Brothers, sisters,
spouse, children
III. Other IV.
parents,
beneficiaries
great-grandparents,
great-grandchildren, etc.
children etc.
etc.
1
2
a
b
a
b
a
b
a
b
NLG
NLG
NLG
%
NLG
%
NLG
% NLG
%
41
0
45
3,356
50
8,729
54 24,846
59 65,137
63 167,206
68 537,880
8
12.8
19.2
24
30.4
36.8
43.2
0
41,979
0
41,979
83,950 2,098
83,950 167,889 5,456
167,889 335,767 15,529
335,767 671,523 40,711
671,523 1,678,787 104,504
1,678,787 and the 336,175
higher
amount of
the taxable
acquisition
5
8
12
15
19
23
27
0
10,914
23,505
52,884
118,356
266,089
749,576
26
30
35
39
44
48
53
0
17,211
36,098
78,067
168,721
366,818
1,001,394
The law provides that acquisitions by qualifying institutions are taxed at a flat rate of 11%.
Most important inheritance tax exemptions:
Acquisition by:
exemption
State, Province,
full
municipality
Charitable institutions
full
Surviving spouse, registered
NLG 587,573
partner and qualifying
cohabitant
Children under age of 23
a minimum of NLG 16,788
condition
if acquisition under NLG 16,788
Children over age of 23
Parents (not cohabitants)
Pension plan
Lineal descendants
NLG 16,788
NLG 83,938
full
full
Other
Some museums
full
full
if acquisition under NLG 50,363
if acquisition under NLG 16,788
and no other exemption is
applicable
if acquisitions under 1,678
Most important gift tax exemptions:
Gifts made by:
exemption
State, Province,
municipality
Queen or Royal family
Charitable institutions
condition
full
full
full
if made for a charitable purpose
Gifts made to:
State, Province,
municipality
Charitable institutions
Children by parents
Other
full
full
NLG 8,394
NLG 5,035
if gift is under NLG 8,394
There are no exemptions with regard to transfer tax.
c. If a couple prior to their wedding day did not enter into a prenuptial agreement the statutory
regime of the universal community will apply. This statutory regime is quite exceptional in
comparison with most foreign matrimonial regimes which are applicable in the absence of a
marriage settlement. It provides that the assets of the husband and the assets of the wife
which they acquired prior to their marriage, will form part of the community property to
which both spouses will be entitled for 50%. The same rule applies to property acquired
during marriage. On the death of one of the spouses the community is dissolved. The estate
then comprises half of the community plus any separate property of the decedent.
1.6. Striking features
A number of striking features may be mentioned with regard to the Dutch matrimonial
property regime. As was described earlier the statutory regime is the universal community
between the spouses. No gift tax is due upon marriage, although the value of the property of
the spouses may differ considerably.
In the Netherlands two adults may also enter into a so-called registered partnership. This is
also possible for two men or two women. The legal result is practically the same as in case
of a marriage. It is also a way to minimise inheritance tax. As soon as the registered
partnership is concluded the surviving partner may benefit from the surviving spouse
exemption and the tax rates of the first category.
Moreover, the governing law provides for a favourable treatment of persons living toether,
without being married and without being registered partners. If two or more people have
conducted a common household which lasted more than five years after the age of 22 the
rates of the first category may be applicable if one of the cohabitants receives a gift or
bequest from another cohabitant. The nature of the relationship between the cohabitants is
irrelevant. Here the term cohabitation is therefore not used in its limited sense of living
together as man and wife. The criterion is the existence of a common household, which in
most cases will imply living together. This also means that the costs incurred by the
cohabitants for the household should be shared according to their financial capacity.
2.
DOUBLE TAXATION RELIEF
2.1.Unilateral relief
The Dutch Decree for the Avoidance of Double Taxation 1989 contains rules pertaining to the
unilateral relief of double taxation, that may apply in the absence of a treaty. The taxes
covered include inheritance and gift tax. The Decree takes as a starting point for allocating the
taxing rights between states the internationally accepted rule that there is an order of taxing
principles in which taxation on the basis of situs ranks first, followed by residence and next
nationality. This explains why the Decree does not deal with the Dutch transfer tax, which is
levied on the basis of situs.
In eliminating double taxation it provides that, if a person residing or deemed to be residing in
the Netherlands gratuitously transfers foreign situs property, which is taxed abroad, the
Netherlands will allow a credit against the tax to be paid in the Netherlands, using the
ordinary credit method. This means that the Netherlands shall allow as a deduction from the
tax calculated according to Dutch law the tax paid abroad on foreign situs property. In this
context the term situs property has the meaning which it has under the Decree. These assets
are the same assets which are subject to Dutch transfer tax, therefore including:
-
business assets attributable to a foreign permanent establishment;
property rights to such an enterprise other than the rights of a shareholder;
immovable property located abroad or rights in rem to such property which does
not form part of an enterprise;
profit-sharing rights – not forming part of an enterprise – with regard to an
enterprise of which the place of effective management is situated abroad, unless
those rights are in the form of securities or originate from employment.
The deduction of foreign tax actually paid cannot however, exceed that part of the Dutch tax,
as computed before any deduction is made, which is attributable to the foreign situs property
(ordinary credit method).
The Decree also provides for a tax deduction if a Dutch citizen is not actually living in the
Netherlands, but is deemed to be a resident of the Netherlands on the basis of the ten year rule.
If the ten year rule applies double taxation is very likely, because of the fact that the Dutch
national is then living in another country which may tax any gratuitous transfer made by him.
In such a case a deduction of tax is granted, if certain requirements are met.
The deduction will only apply to tax paid abroad as a result of the residence of the decedent or
the donor. This means that foreign tax which is levied on the basis of the domicile, residence
or nationality of the heir, legatee or donee does not qualify for this deduction. Neither does it
deal with foreign situs property, since there is a separate provision, already mentioned, which
eliminates this kind of double taxation. The deduction does not pertain to Dutch tax which is
attributable to Dutch situs property, since this tax is also levied - albeit under another name after the expiration of the ten year period. During the ten year period either gift or inheritance
tax will be due on the situs property after the ten year period transfer tax will be levied with
respect to these assets. The deduction is also based on the ordinary credit method.
In some cases, where the foreign situs property deduction and the ten year term deduction do
not apply, the tax paid abroad on such assets may in determining the value of such assets for
Dutch tax purposes be subtracted from the acquisition
2.2.
Tax treaties - Overview
a. So far the Netherlands has concluded seven conventions with regard to estates and
inheritances. In chronological order these are:
Country
Date of
conclusion
Date of entry
Subject matter
Switzerland
12 November
1951
25 April 1952
29 March 1954
9 January 1952
inheritance tax
5 February 1953
23 December
1955
3 February 1971
inheritance tax
inheritance tax
14 July 1975
inheritance tax
16 June 1980
inheritance and gift tax
Sweden
Finland
United States of
America
Israel
United Kingdom
15 July 1969
9 November
1974
11 December
1979
inheritance tax
France
Austria
not yet in force
not yet in force
b. As most important deviations from the OECD Model provisions can be mentioned the fact
that a number of treaties (Switzerland, United States of America, Israel, United Kingdom)
create subsidiary taxing right with regard to the ten year rule, as explained above and the fact
that the articles on fiscal domicile in the treaties concluded between the Netherlands and the
United States of America and the United Kingdom are far more complex than the one
prescribed by the OECD Model provisions. This is due by the fact that the Anglo-American
jurisdictions mentioned use domicile (United States of America and United Kingdom) and
citizenship (United States of America) as the main criterion for levying world-wide tax.
2.3. OECD
Model-conformity?
The treaties concluded with the United States of America, Israel and the United Kingdom are
to a certain extent modelled after the 1966 OECD Model Estate Tax Convention.
2.4.
Method to avoid double taxation
The method employed in the estate (and gift) tax treaties concluded by the Netherlands is the
ordinary credit method.
3.
EC LAW
There is a Dutch case by the Court of the Hague (4 February 1991, FED 1991/420) where the
court ruled that the ten year rule based on nationality was not discriminating. The taxpayer had
explicitly referred to the EC Treaty. To my understanding the question was never put to the
Supreme Court of the Netherlands, although the Supreme Court has ruled that the ten year rule
does not violate Article 26 of the International Covenant on Civil and Political Rights.
The extent of the fundamental freedoms mentioned in the EC Treaty is still quite unclear. It
seems unlikely that a country should be forbidden to discriminate against its own nationals. As
long as harmonisation with regard to the taxes under view has not taken place, a country
should be allowed to prevent tax avoidance by his own nationals.
If Dutch transfer tax is levied with regard to situs property in the Netherlands, no exemption
applies. This could be viewed as discriminating against foreign residents. It should, however,
also be taken into account that the taxable base of (deemed) residents is far more extended
than the Dutch situs property.
4.
CASE
Country A: No, the domicile criterion is not used in the Netherlands.
Country B: Yes, nationality is used as a criterion for world-wide taxation for a limited period
of ten years.
Country C: Yes, residence of the decedent or donor creates an unlimited tax liability.
Country D: Yes, limited taxation takes place in the Netherlands on the basis of situs.
Country E: No, the fact that someone dies in the Netherlands during a holiday does not
constitute a taxable event.