Application of the MAP-tiebreaker in tax treaties on dual resident companies

19 maart 2020 | Door:  Barry Scheer

Decree of 9 December 2019, No. 2019-25404

This Decree contains a number of rules for the application of the so-called MAP-tiebreaker in a number of tax treaties. According to this MAP-tiebreaker, the competent authorities of the Netherlands and the other contracting state determine by mutual agreement the place of residence of companies, which are considered to be residents of both states for tax purposes (dual residents). This MAP- tiebreaker will apply in various Dutch tax treaties, due to the Multilateral Instrument (MLI). In connection with this, the Decree also contains an approval for (existing) situations in which the resident of a company has already been determined for the application of the tax treaty.

Procedure

A request for the determination of the treaty residence must be submitted in one of the two countries - by the dual-resident company - within the period set in the treaty article on the mutual consultation procedure.

The Netherlands aims to complete a request based on a MAP-tiebreaker within six months of receipt of all relevant information (but is of course partly dependent on the other country involved). Until agreement is reached, there is in principle no right to a reduction or exemption from tax under the relevant tax treaty. Determining the moment from which entitlement to the treaty benefits can be claimed forms part of the mutual consultation under the MAP-tiebreaker procedure. The Netherlands will generally base this on the date when dual citizenship arose.

Approval of existing situations

It may occur that the treaty residency of a dual domicile has been previously determined under a corporate tiebreaker provision in a tax treaty and that provision is changed to an MAP tiebreaker as a result of bilateral treaty negotiations or the MLI. It is approved that in such a situation no (new) request to start mutual consultations has to be made as long as and insofar as the facts and circumstances on the basis of which the treaty is determined have not changed. In such cases, taxpayers and the tax authorities can assume that there is (implicit) agreement between the competent authorities of both countries about the treaty residence. The following conditions apply:

1. If the treaty provided for a corporate tiebreaker provision based on the criterion of the place of de facto management, the approval shall only apply if it appears that the tax authorities of both countries concerned assume the same treaty residence in the assessment scheme.

2. If there was an MAP-tiebreaker provision in the treaty that has been amended or replaced, approval will only apply if the competent authorities have agreed upon the treaty residence under the old provision. The approval therefore does not apply if an MAP-tiebreaker was already applicable, but no request has been made by a taxpayer to start the mutual agreement procedure based on that tie-breaker provision.

3. The tax authorities can at any time still assume the application of the new MAP-tiebreaker (and refuse treaty benefits) if there is (treaty) abuse.

4. The approval does not apply if the Netherlands has agreed a MAP-tiebreaker through bilateral re-negotiation and has made further agreements with the treaty partner concerned about existing situations.

The approval only concerns the application by the Dutch tax authorities of the relevant treaty provisions. A treaty partner may come to a different conclusion and refuse treaty benefits. In such cases, the taxpayer may request a mutual agreement procedure based on the applicable MAP-tie- breaker.