New Tax Treaty signed between The Netherlands and Mainland China

by DLA Piper

The Netherlands and China signed a new Tax Treaty for the Avoidance of Double Taxation and Prevention of Fiscal Evasion on 31 May. Once in effect (no earlier than 1 January 2014), it will replace the current tax treaty, which was signed in Beijing on 13 May 1987.

The treaty clearly purports to further improve investment opportunities. For investors, the main advantage of the treaty is a reduction in the dividend withholding tax rate from 10% to 5% on shareholdings of 25% or more. For shareholdings of less than 25% the preferential treaty rate will remain 10%. The treaty also provides explicit provisions designed to counteract "treaty shopping". The treaty provides explicit provisions designed to counteract treaty shopping and contains an expanded exchange of information provision.

Main changes and new rules

  • The dividend withholding tax rate is reduced from 10% to 5% on shareholdings of 25% or more
  • A 0% dividend withholding tax rate is now available when the recipient beneficial owner is the government or a state-owned enterprise
  • The tiebreaker rule for determining residence under the treaty when an entity is resident in both contracting states has been brought in line with the OECD model treaty
  • The test for a building site, construction, assembly or installation project (as well as supervisory activities in connection therewith) constituting a permanent establishment has been extended from six months to 12 months
  • As under the current treaty, royalties arising in a contracting state and beneficially owned by a resident of the other contracting state may also be taxed in the former contracting state. However, the new treaty divides royalties into two categories. The taxable amount for payments of any kind received as a consideration for the use of, or the right to use, industrial, commercial, or scientific equipment is adjusted to 60 percent of the gross amount and thus effectively reduces the amount of royalty withholding tax payable
  • Gains from the alienation of shares of a company may be taxed in the contracting state in which the company is a resident provided the recipient of the gain has had, at any time during the 12-month period before the alienation, a direct or indirect participation of at least 25% in the capital of the company
  • Remuneration derived by a resident of a contracting state in respect of an employment exercised aboard a ship or aircraft operated in international traffic may now be taxed in the contracting state where the place of effective management is situated. Under the current treaty, only the contracting state in which the employee resides is allowed to tax
  • A new provision allows the contracting state that fiscally facilitated a pension accrual to tax the pension and other similar remunerations
  • The provision that provided an income tax benefit to teachers and researchers resident in one contracting state and visiting the other contracting state for the primary purpose of teaching or undertaking research has been removed
  • The tax sparing credits for interest and royalties will no longer be available
  • The method used by the Netherlands to eliminate double taxation of director's fees will be the credit method instead of the exemption method. Further, a new provision clarifies the term "member of the board of directors" used in article 16 (directors' fees)
  • A new provision expressly preserves the application of domestic anti-avoidance provisions1
  • The new treaty contains expanded and strengthened provisions on exchange of information
  • A new provision provides for assistance in the collection of taxes.

Expected date of entry into force

The treaty still needs to be ratified according to the legislation of both the Netherlands and China. Upon notification of completion of ratification procedures, it will enter into force on the last day of the month following the date of the last notification. The treaty will become effective as of 1 January following the calendar year in which the treaty enters into force.

China's anti-tax abuse campaign

The treaty's anti-treaty-shopping provisions deny preferential tax treaty rates for dividends, interest and royalties when (one of) the main purpose(s) of the creation or assignment of rights is to take advantage of the Treaty benefits. The introduction of these provisions is in line with China's anti-tax abuse campaign that started in 2008 with the introduction of general anti-avoidance rules in China's corporate income tax law2, which paved the way for the introduction of extensive tax enforcement measures, including anti-treaty shopping Circular 6013, and the infamous Circular 6984 targeting indirect equity transfers in Chinese resident enterprises, where the offshore holding company lacks commercial substance. As article 23 of the new treaty expressly preserves the application of domestic anti-avoidance provisions, China can (and will) continue to apply its extensive tax enforcement measures, including circulars 601 and 698.

The Netherlands heading toward 100 tax treaties

The signing of the new tax treaty combined with the already highly attractive Netherlands holding regime may well make the Netherlands the inbound and through-bound jurisdiction for Chinese Investment in the Netherlands and beyond.

The expansion and improvement of the already extensive and high-quality Dutch treaty network is clearly a priority of Dutch State Secretary of Finance Frans Weekers. The Netherlands has signed 97 bilateral tax treaties5, and is in treaty negotiations with Algeria, Chile, Colombia, Cyprus, Iraq and Kenya. Also, the Netherlands will this year start discussions on concluding tax treaties with Costa Rica, Tadzhikistan, Tanzania and Uruguay6. The Netherlands could very well have 100 bilateral tax treaties in place within the year.

1 Article 23 (Miscellaneous rule)
2 Article 47 of the Chinese Enterprise Income Tax Law provides that if an enterprise enters into any business arrangement without reasonable business purposes that results in reduced taxable revenue or income, the tax authority is entitled to make adjustments based on reasonable methods
3 Guo Shui Han [2009] No. 601 titled Notice On Interpretation And Determination Of Beneficial Owner Under Tax Treaties
4 Guo Shui Han [2009] No. 698 titled Circular on Strengthening the Administration on Collection of Enterprise Income from Enterprise Transfers by NonresidentEnterprises and issued by the State Administration of Taxation of PRC
5 Tax treaty overview as at 1 Apr 2013, available at the website of the Government of the Netherlands
6 Negotiations tax treaties 2013, newsflash published on the website of the Government of the Netherlands on 26 Apr 2013

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© DLA Piper | Attorney Advertising

Written by:

DLA Piper

DLA Piper on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.