July 1, 2000 |
By
Keith Martin in Washington, DC
HOLLAND announced that it will no longer issue tax rulings on hybrid instruments or entities.
A hybrid is an instrument or entity that is characterized one way for tax purposes in Holland and a different way for tax purposes in another country. For example, an instrument through which a Dutch holding company injects money into a project company in Turkey might be classified as debt for tax purposes in Turkey, but as equity in Holland. This would enable the owners to “strip” earnings by withdrawing them from Turkey in a deductible form (interest), but to avoid tax on the earnings in Holland since they are viewed in Holland as an equity return (dividends). Earnings coming into Holland as an equity return are usually exempted from Dutch taxes under a “participation exemption.”
Dutch transactions are usually done with advance rulings from the tax authorities. It remains to be seen whether companies will be willing to act in future merely on the basis of legal opinions.
