Naturally, there is more than one way of doing business in Europe. If you want to do business in Italy, get used to a lot of conversation and then get ready to check on your business partners to see if they are still doing what you agreed upon. When you are doing business with the French, start out by learning French, or at least take a few lessons in "English spoken as a Frenchman." Doing business with the British could be the easiest of all, as there isn't really a language barrier. In doing business with Germans there can be a tremendous language barrier, but the good thing about the Germans is their grundlichkeit which translates to thoroughness. Their thoroughness is probably why your neighbor owns a BMW, or perhaps why you may have one yourself. So far, we have only mentioned 4 of the 27 EU countries. Are you starting to get the point?

The Netherlands with its 12 provinces and rich Dutch tradition and history have been at the crossroads of all of these EU member countries for more than a thousand years. Without sounding braggadocios, we have become used to living with and doing business with the rest of Europe. Our firm would like to share our experience and expertise with you, not only from our point of view, but by demonstrating hard calculable facts.

In this report, we will assume that you as an American businessperson have set up a profitable business in let's say, Spain.

The Basic Dutch Holding company

A first way to easily reduce taxation on investments in Europe is by means of incorporation or acquisition of a Dutch (intermediate) holding company, a so-called Besloten Vennootschap (BV) a private company with limited liability. This is because the Netherlands has concluded a large number of favorable treaties for the avoidance of double taxation (hereafter: DTT's), perhaps more than any other country in the world. One of the advantages of the DTT's lies in the fact that dividend withholding tax rates are significantly reduced if payments are made from a company of one contracting state (of that DTT) to a company of the other contracting state. For example, let's take an investment by an American company in Spain, with the U.S. company being the sole shareholder of a very profitable Spanish company. If this Spanish company were to distribute its profits in the form of dividends, the Spanish tax authorities will have the right to impose a 10% dividend withholding tax (hereafter: DWT). However, if the Spanish company distributes the dividends to the Netherlands first, EU regulations stipulate that no DWT may be levied. When the funds in turn are distributed as dividends from the Dutch company to the U.S. parent company, these dividends will be taxed with 5% DWT in most cases and if specific requirements are met, may not be taxed with DWT at all.

The more exotic CV structure

Another possibility in tax planning, which is especially beneficial in the relationship between the United States and the Netherlands is the so-called CV structure.

The crucial element of using a Dutch CV as a tax planning instrument is that it can be considered as a transparent vehicle for Dutch tax purposes, as well as a corporate entity from a foreign tax perspective. If properly drafted, a closed CV will not be subject to Dutch corporate income tax on its profits. To qualify for this tax transparency, the CV must place restrictions on the transfer of the interest of the limited partner, on admitting new limited partners and on altering the relative share of interest between limited partners, and each of these transactions needs the prior consent of all partners. In the jurisdiction of the limited partner a closed CV may often be considered non-transparent and thereby treated as a corporation.

Due to the U.S. tax system of "checking the box" the CV can indeed be regarded as non-transparent for U.S. purposes. Keep in mind, such income allocated to the CV will be considered to have left the Netherlands from a Dutch perspective, but not yet have entered the U.S. from an American perspective. It could result in a tax deferral for an unlimited period of time.

Staying tax compliant

Finally, when investing in Europe, it will be necessary to be tax compliant. As the EU has 27 countries, and because there are more countries to Europe than just the EU countries, being compliant with all the different tax authorities could give you a headache. Unfortunately, although the EU member states are in a continuous process of harmonizing EU (tax) law, you will have to register with the tax authorities in each country that you wish to conduct business.

EU's Value Added Tax (VAT) is a form of taxation levied on the consumption of goods and some services by the EU; much like sales tax in the U.S., but also on some services. Similar to most taxation on goods and services, being the provider of such services or sales of goods will require registration with the VAT authorities when subject to this tax.

The most harmonized is the system of Customs Duties within the EU, which is entirely governed by EU legislation. Again, registration will be needed with each country in which you wish to conduct business. There is a special benefit to handling goods via the Netherlands. If in fact the goods are to be re-exported from the Netherlands, a special warehouse facility can be utilized. If this happens, no import duty or Dutch VAT could be due at all.