Report on taxation of headquarters
Report on corporate taxation of headquarter services in Europe
VU University Amsterdam published this report, which provides insights into the current tax treatment of group headquarter (HQ) services in the Netherlands, Ireland, the United Kingdom and Switzerland. The study focuses on the taxation of holding companies, financing and treasury companies, research and development activities and the exploitation of intellectual property.
For this purpose they calculated effective tax burdens for different headquarter services of hypothetical investments projects. To the extent that this is relevant special tax regimes are addressed that aim at other kinds of group services such as auxiliary services.
As an overall conclusion, it becomes clear that the Netherlands no longer has a competitive advantage as a holding company location, given similarly attractive regimes in the other jurisdictions under consideration. The Netherlands still seems to be relatively attractive in case of debt funded holding activities, but only to the extent that the related interest expense is tax deductible, which is not always the case. The impact of dividend withholding tax on dividends distributed by holding companies has not been taken into account in the model, which is relevant when interpreting the outcome of the calculations. The taxation of inter-company dividends will influence the outcome of decision makers upon choosing an appropriate jurisdiction for establishing holding company functions.
As for group finance and treasury functions, the EU code of conduct for business taxation and EU state aid rules seem to have resulted in a level playing field for both equity and debt funded group finance activities. It will be difficult for the Netherlands to distinguish itself from the other jurisdictions in this respect, other than by means of maintaining its vast network of tax treaties and maintaining its professional and easily accessible administrative practice of obtaining certainty in advance from the Dutch tax administration.
For the R&D and IP functions, the Netherlands seems to be on the right track in terms of attractiveness. The very positive outcome for the Netherlands due to the Innovation Box and super deduction (RDA), should be interpreted in light of the assumption that all the income from technical know-how can be taxed under the beneficial 5% effective tax rate of the Innovation Box. It should be borne in mind however that dependent on the facts and circumstances, not always the entire income can be allocated to the Innovation Box.
Click on the source for the report (in English)
What does this mean for our relationships?
To consider in which country to locate the headquarters everything needs to be taken into consideration. Not only for taxation but also other facts like good accessibility, excellent infrastructure, pro-business and pro-commerce attitude and well educated and skilled workforce.