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Doing Business in Europe – the Dutch Cooperative

By Hoite R. Schaap - Email Editor

Dear Valued Reader,

In our previous contribution to the Trustmakers’ Newsletter we elaborated on doing business in Europe especially by means of a Dutch (Intermediate) Holding company. In this article we kindly wish to demonstrate the possibilities of the Dutch Cooperative (Coop), the Dutch Coop in combination with a Dutch BV (a limited liability company) and we will further demonstrate the possibilities of the extensive Dutch tax treaty network.

The Dutch Coop

The Dutch Coop is an entity that can be used by foreign companies to conduct business in a third party country and repatriate income generated in that country in a tax friendly manner, it can also be used, however, in a family structure for wealthy individuals who wish to protect specific investments abroad. Moreover if a combination is made with a so-called ‘Foundation Administrative Office’ (in Dutch: Stichting Administratie Kantoor – STAK), it will be possible to keep the beneficial ownership of the structure undisclosed from third parties.

Essentially, the Coop is an association which should have at least 2 members. In the Netherlands, a Coop is regarded as an entity for Dutch corporate income tax ("Dutch CIT") purposes and, as such, is subject to Dutch CIT of 20% - 25% As a result, for Dutch tax purposes a Coop is considered a resident of the Netherlands under the rules of the Netherlands’ numerous tax treaties.

Dutch participation exemption

A Dutch Coop, like the Dutch private limited liability company (BV) and public limited liability company (NV), is fully entitled to the Dutch participation exemption, provided the subsidiaries held by the Coop qualify under the Dutch participation exemption rules. If the subsidiary is engaged in active business activities, is not held as a portfolio investment or is subject to an effective tax rate of at least 10% in Netherlands the Dutch participation exemption will, in principle, be applicable, meaning that dividends and capital gains received from the subsidiary will be exempt for Dutch CIT at the level of the Dutch Coop.

Profit distribution from Dutch Coop to foreign company

The tax position of members of a Dutch Coop is comparable with the tax position of shareholders of a Dutch BV or NV, with a limited number of exceptions. One of the principal exceptions is that distributions of profits by a Dutch Coop are not subject to Dutch dividend withholding tax (‘Dutch DWT’). Distributions of profits by Dutch Coops fall outside the scope of the levy of Dutch DWT because Dutch Coops are not classified as companies of which the capital is divided into shares.

Dutch tax treatment of membership foreign company in Dutch Coop

Non-resident corporate members are subject to Dutch CIT in respect of profits, income or capital gains derived from their membership in the Dutch Coop in the event that their membership forms a substantial interest and the membership cannot be allocated to the assets of a business. Members resident in a country which has concluded a tax treaty with the Netherlands, however, will usually not be subject to tax on gains deriving from their membership of the Coop as the tax treaty will usually allocate the right to tax the gain to the member’s country of residence.

A (Dutch or foreign) corporate member of a Dutch Coop shall not be subject to Dutch CIT as a domestic or foreign taxpayer, if:

- The membership of the Dutch Coop can be considered as part of the business assets of the member; or

- The applicable tax treaty allocates the competence to levy taxes on the income and capital gains derived from a Dutch Coop to the country where the Dutch Coop member is resident.

As mentioned, the Coop as described above is often used to eliminate the levy of dividend withholding tax. Furthermore the combination of a Coop holding a Dutch BV is often used in international structures. This is to ensure that any distributions made by foreign (non-EU) participations to the Netherlands will be subject to a reduction of the dividend withholding tax rate under a tax treaty if applicable.

Coop in a structure

Please find a diagram of a structure using a Coop in an international context here below. As you can see, a favorable route for using a Coop is via Curaçao, formerly the Netherlands Antilles. This is due to the fact that the Netherlands has a tax regulation (equivalent to an International Tax Treaty) with Curaçao entailing the tax friendly possibility of repatriating funds to Curaçao. Moreover, Curaçao with a participation exemption of his own will exempt distributions by the Coop to the Curaçao companies from their taxable base.

Furthermore, as depicted below, a Brazilian Real Estate Company is used as the active (investment) company. Please note however, that any foreign company can be used as long as the above mentioned requirements of the Dutch participation exemption will be met (which, as mentioned, is the same for both the Coop and the BV).

Apart from the above, please note that the use of another jurisdiction with respect to the active (investment) company results in different foreign DWT rates (which could still be 0% though as the extensive number of tax treaties concluded between the Netherlands and other countries often reduces the local foreign percentages if dividends are distributed to a Dutch company). The other percentages in the diagram will not change however. Moreover, (partial) financing of the structure with debt will be possible and beneficial as well due to the absence of Dutch interest withholding tax and Curacao interest withholding tax.

Conclusion

The Dutch Coop structure can be a very beneficial structure, especially if you wish to repatriate funds to low-taxed regimes. If you however wish to repatriate funds to the United States we kindly refer you to our previous contribution to the Trustmakers’ Newsletter in which we discussed the Dutch Closed C.V. (limited partnership). In our next contribution we will demonstrate the use of the Dutch Foundation, an entity which can be especially useful as a means of keeping ownership undisclosed.

Call 888.916.7070 or email info@trustmakers.com

Until next time,

Hoite R. Schaap

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