Peculiarities in the Dutch implementation of the Pillar 2 minimum tax

2.1 Active government

The Netherlands was a front runner in transforming the Pillar 2 Directive in national legislation.2 A draft version of the Dutch legislative proposal was already published for a public consultation on the 24th of October 2022,3 almost two months before the Directive was formally agreed on. The Dutch consultation draft was based on the 16th of June 2022 compromise wording of the Directive. It had primarily a technical character. The government opted for this early consultation to both be able to meet the tight implementation deadline and to benefit from consultation reactions to improve the quality of the legislation.4 In this respect, it is important to mention that the legislative process in the Netherlands always requires a certain amount of time. This is caused by the fact that the Dutch constitution requires an obligatory advice of the Advisory Division of the Council of State5 before a legislative proposal may be sent to parliament. The government may use this advice to amend (or withdraw) the proposal and must write a reaction on it. Only then it can send the legislative proposal to parliament. At that stage the full proposal is made public. The legislative proposal must first be adopted by the House of Representatives6 and subsequently by the Senate.7 Where the House of Representatives may make amendments to a proposal, the Senate can only adopt or reject a proposal.

The public consultation resulted in 16 public reactions.8 These included reactions of the Dutch Association of Tax Advisers, the Confederation of Netherlands Industry and Employers (VNO-NCW), Tax Justice the Netherlands, the Royal Association of Netherlands Shipowners, the American Chamber of Commerce in the Netherlands (AmCham), American Tower Corporation, the Netherlands British Chamber of Commerce, the Dutch Association of Insurers, two tax consultancy firms and of several individuals applauding a minimum tax. The consultation led to some changes in the proposal.9

A little more than three months later, on the 29th of March 2023, the legislative proposal was sent to the Council of State. The Council of State gave its advice on the 17th of May 2023.10 Within two weeks, on the 31th of May 2023, the government sent the legislative proposal to the House of Representatives.

2.2 Cold feet in the Senate

The House of Representatives voted in favor of the legislation on the 26th of October 2023 with a large majority of 140 of the 150 votes (93 %). Only three small right-wing parties voted against the proposal (two members of the House of Representatives were absent). The most interesting discussion on the proposal was in the Senate. The Senate is specifically supposed to do the final test (the Council of State also includes such test in its advice) on the constitutionality of a proposal as Dutch judges are not allowed to test legislation against the constitution.11

The largest party in the Senate, the populist Farmers Citizens Movement Party,12 (16 seats) was very critical. Their spokesperson, a tax lawyer, doubted whether the proposal would reach its goals, would be executable and pointed at the uncertainty of the income or even costs for the Netherlands. He also feared that it would ‘surrender’ the Dutch tax base to the International Accounting Standards Board. He deemed this unconstitutional13 and argued that the Pillar 2 Directive might be disproportional as a simpler and less intrusive system would be possible in the EU. He suggested that the Pillar 2 Directive might be deemed invalid by the Court of Justice of the European Union.14 The State Secretary of Finance at the time (also a tax lawyer and former EY partner) acknowledged it was the most complex piece of legislation he had ever seen, but pointed out that the Directive just had to be implemented as otherwise the European Commission could impose fines or start an infringement procedure.

Members of the Senate also asked questions on the limited role of parliament in the establishment of the Pillar 2 rules.15 The government answered these questions under the heading ‘democratic safeguards’.16 It was of the view that it extensively informed parliament during the whole process of establishing the Pillar 2 model rules in the IF and the proposal on the Pillar 2 Directive, and referred to letters it sent to parliament between 2018 and 2023. This, in the view of the government, gave parliament the possibility to influence the Dutch position in the negotiations. Government recalled that parliament (predominantly the House of Representatives) asked for a speedy implementation of the rules. The government also pointed out that parliament raised questions on the implementation, complexity and mechanics of the rules and that the government duly answered these questions. Also, the government observed that parliament was continuously informed on the negotiations in the Council as the annotated agenda of meetings was sent to parliament before these meetings and a report was sent to parliament after the meetings. The government also pointed out to the Senate that it organized a public technical meeting for the House of Representatives in which the background, establishment, and the main features of the legislative proposal were discussed. Basically, the government told the members of the Senate, who are supposed to specifically test the constitutionality of Dutch legislative proposals, that they were too late and should have raised their concerns at an earlier stage.

In such (much) earlier stage, De Wilde had raised questions on legitimacy and the inclusion of parliament. For example, in 2020 he took the view that the issues under discussion were of too big a relevance to make the outcome dependent on bureaucratic processes.17 In 2022, in a comment on a letter of the 7th of March 2022 in which the government answered questions of parliament on the proposed Pillar 2 Directive, he lamented that these questions and answers felt a bit like a ritual and obligatory dance as everything had already happened: the embracement by the Netherlands of the international political agreement in 2021, the publication of the OECD model rules and the Pillar 2 Directive. He compared it to waking up in a train to discover we took the wrong train and then start a discussion on the exact time we will arrive at the destination.18 In reaction to the discussion between the government and the Senate in November 2023, De Wilde commented that the representatives of the people, guardians of the democracy, had been asleep and that they themselves decimated their role and responsibility to an almost ceremonial one.19

On the 19th of December 2023, the Senate adopted the proposal with 54 of the 75 votes (72%). The populist Farmers and Citizens Party voted against the proposal, whereas the only seat it had at the time of the voting in the House of Representatives, had voted in favor. On the 31st of December 2023, the Minimum Taxation Act 2024 (Wet minimumbelasting 2024)20 entered into force.

4.1 Later OECD guidance

Amendments of the OECD/IF, including the administrative guidelines, do not have direct effect in the Dutch legal order as neither the IF nor the OECD can establish binding legislation.26 In relation to the OECD Commentary on the OECD Model Convention, the Dutch Supreme Court ruled that changes made in the Commentary after a certain tax treaty was concluded, are not relevant for the interpretation of the provision in the specific treaty if the changes go further than a mere clarification of the specific provision in the Model Convention. The Supreme Court observed that another view would entail that establishing or amending the content of obligations arising for the Netherlands from a tax treaty, is withdrawn from the competent bodies designated as such by or pursuant to the constitution.27 This means that the Dutch Supreme Court would probably also not accept a dynamic interpretation of the OECD model rules. The Dutch government announced it will assess on a case-by-case basis whether the Dutch minimum tax legislation or the explanation of that legislation must be amended and assured that it would keep an eye on democratic checks in this respect.28

In 2024, the Netherlands implemented elements of the February, July and December 2023 and June 2024 OECD administrative guidance on Pillar 229 in the Minimum Taxation Act 2024 with retro-active effect to 31 December 2023.30 Originally, these amendments were made in a so-called compilation legislative proposal that included various technical changes in many different laws.31 However, the Council of State urged to include these changes in a separate proposal as these were complex and relatively substantive.32 In this respect, the Council of State referred, amongst others, to Sweden, that did include the amendments in a separate legislative proposal.33 As a result of this advice, the amendments were sent to parliament as a separate proposal. Furthermore, the Council of State questioned that the proposed legislative changes had not been included in a public consultation. The government gave as reasons for omitting such consultation the timing of the publication of the guidance, its complexity and the aim of the government to implement Pillar 2 rules as soon as possible and to use all time available to draft high quality legislation.34 In addition, the government was of the view that there was little leeway to deviate from the Pillar 2 model rules.

This legislation included OECD guidance elements that the government deemed to go further than mere clarification and which needed a legal basis. Elements that in the view of the government go further than mere clarification, but for which the Minimum Taxation Act 2024 allows implementation by delegated act, were included in the Implementing Decree Minimum Tax 2024.35 The reason for these implementations is to enable a consistent application of the OECD model rules and to avoid discrepancies with the application in other states.36 The implementations closely follow the OECD guidelines. However, it does mean that the Dutch regulations now include rules that are not part of the Pillar 2 Directive as the Directive was not changed after publication of the OECD guidelines. De Wilde questions how long Netherlands will be able to reconcile the OECD guidance and the national legislation.37

4.2 Guidance of the Dutch tax administration

To help taxpayers and tax inspectors, the International Unit of the Large Enterprises Division of the Dutch tax administration established a Pillar 2 central expertise team. Together with local tax inspectors, this team is responsible for the implementation of the rules. It must also safeguard equal interpretation of the rules by different tax inspectors. Taxpayers can contact the expertise team directly through an email address (pijler2@belastingdienst.nl).

The tax administration provides for general guidance in a pdf on its website with links to the underlying Pillar 2 documents, such as OECD model rules and guidance, the Pillar 2 Directive and Dutch legislative documents.38 According to a LinkedIn post of the tax administration announcing the launch of this knowledge database, it is intended to add answers to frequently asked questions in due course. The LinkedIn post also mentions that the document will be regularly updated to provide for up-to-date information.39

Furthermore, the sub-knowledgegroup40 Pillar 2 of the tax administration published various so called ‘knowledgegroup positions’ on its website.41 Taxpayers can rely on these positions.

Legal certainty on the application of the IIR and UTPR can be obtained through a tax ruling under the rules and requirements generally applicable to international tax rulings. This also means that a ruling can only be obtained if the multinational group has economic nexus in the Netherlands and the applying company has operational activities for which it runs financial risks and for which sufficient staff is available in the Netherlands. The activities must suit the function of the company in the group. It also means that, for example, no ruling can be obtained if the only or decisive reason for a transaction is to reduce Dutch or foreign tax or if the requesting company, one of its directors or ultimate beneficial owner/intermediate holding company with an interest of at least 5%, is included in the Consolidated lists of EU financial sanctions or of persons, groups and entities subject to EU financial sanctions. In the Decree on international rulings it was added that the tax inspector must include the expertise team Pillar 2 when dealing with such ruling request.42 An anonymous summary of the ruling is published on a website of the tax administration. Such summary is also published if a ruling is not obtained, but preliminary consultations with the tax administration have taken place. The first Pillar 2 ruling was dated 23 April 2024.43

According to De Wilde, with these positions and rulings the Dutch tax administration shows to be willing and maybe even courageous with respect to providing legal certainty on the application of the minimum tax rules.44 He observes that states that do not agree with these positions might levy a top-up tax. During the parliamentary discussions on the minimum tax, the government held that a mutual agreement procedure (MAP) could be started to solve a dispute on the interpretation of Pillar 2 rules45 and that most bilateral tax treaties contain a provision that allows countries to start a MAP on taxes not mentioned in the treaty.46 This would, of course, require that the specific tax treaty contains a provision similar to article 25 OECD MC. However, if differences in interpretation of the rules do not lead to an additional tax, bilateral tax treaties do not seem to provide for a MAP. When questioned on this point, the government pointed out that the Pillar 2 Directive was based on the OECD model rules which were agreed on in the IF and that there is little policy room to deviate from these model rules. In addition, the government noted that the IF provides for safeguards such as technical assistance in the implementation of the rules if differing interpretations would arise.47

The Dutch government prefers a multilateral agreement on dispute resolution over relying on the MAP in bilateral treaties,48 and promised parliament it was committed to further such a multilateral agreement.49 If that would not be feasible, the government advocated an examination on whether an amendment of the EU Dispute Resolution Directive50 would be desirable and feasible to at least solve disputes in the EU.51 The government also mentioned that arbitration only seems to be possible in very few specific cases where countries differ in the interpretation of Pillar 2 rules.52 The government would prefer an OECD solution over a Dutch or EU solution, also for arbitration, as this would be most efficient and effective if all IF-members would commit to it.53

De Wilde also warned that because of the positions and rulings on the minimum tax, the European Commission might initiate infringement procedures against the Netherlands and that the European Parliament might deem the positions to be problematic as they mean that the Netherlands will not levy a top-up tax.54 He observed that the minimum tax is part of the acquis Communautaire and that no EU institution, not even the European Commission or the Council has given legally binding guidance on the interpretation of the minimum tax. He notes that only the EU legislator and the Court of Justice may elevate OECD guidance to EU law. This could mean that the group positions may be deemed to be non-binding.