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Corporate Service Providers poured into fog, which was confirmed by the impact of the Panama Papers. In response to the global outrage that followed, a stricter regulation was soon demanded. Has something changed in the meantime? And does this have consequences for the property industry? Rob de Groot, earlier this year appointed as Director Management Services at Equity Estate, has been very active in the past years as statutory director of Dutch entities for international organisations in the banking, telecommunication and real estate sector. In this article, De Groot indicates the meaning of changing laws in corporate services activities for the real estate sector.
The Netherlands as leader
The Netherlands plays a very prominent role in the world of international (tax) structures. Extensive research shows that The Netherlands is leader as a so-called ‘Conduit-OFC’, a country through which a lot of funds flow. This happens by using Dutch entities (private companies, limited companies, cooperatives, etc.), that are in a legal structure between the ultimate owner and the companies where the activities are actually taking place. As these companies are located in several countries, and because often also more entities are part of the structure, the picture of a cluttered web arises.
Taxability is one of the reasons to build such a web. An organisation can furnish the cost item ‘taxes’ in such a way that savings can be made. The Netherlands is also a much-chosen country because of the good infrastructure, well educated people speaking their languages, the easy accessibility and the many tax treaties.
Real Estate Management and Corporate Services
Also, foreign investors and investments funds buying and managing (Dutch) real estate move with these structures. Dutch companies, directly or indirectly hold real estate in The Netherlands. The Dutch corporate services office manages the company, is usually statutory director, arranges the financial administration, and takes care of the legal and administrative status (corporate housekeeping) of the company. The real estate is managed by an Asset Manager and a local Property Manager. The Property Manager carries out the administration of the real estate and provides the administration to the corporate services office enabling the corporate services office to prepare the final reports and the statutory annual accounts.
The Panama Papers
Certainly, after the start of the crisis in 2008, there has been much going on about the structures that are served by corporate services offices, in The Netherlands in particular the tax routes. For the general public, the Panama Papers formed the journalistic breakthrough. This resulted in a unique event in Dutch politics, the first parliamentary interrogation in which various parties, like representatives from the Dutch Corporate Services sector, fiscal advisors, the supervisor of the Dutch Central Bank and journalists were interviewed under oath as witnesses and experts.
Serious consequences, nationally and internationally
During this parliamentary interrogation the concept ‘substance of form’ was discussed more than once. Companies that are based in a certain country for tax reasons, should have ‘substance’ in that country. If not, their presence in that country is not recognised. To avoid the appearance of the structure only being a structure providing a financial advantage, the Tax Authorities and the Ministry of Finance prepared a list of 10 requirements that a company has to fulfil in order to be seen as a Dutch company and in order to be able to use the treaties network. A substantial effort in the home country is the basis. Thus, it was a requirement that amongst others half of the management has to be living in The Netherlands, the bookkeeping has to be performed in The Netherlands and de bank accounts are to be managed from The Netherlands.
Internationally, the OECD (Organisation for Economic Cooperation and Development) started the BEPS project (Base Erosion and Profit Shifting), an action plan that has to result in globally coordinated agreements to prevent tax evasion by base erosion and profit shifting. The action plan consists of 15 points of action. Although the BEPS action plan is still in an early state of implementation, it is already clear that it will be a global regime, with increased tax risks for organisations that do not commit themselves to these points. Also in these points ‘substance’ plays an important role.
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