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![handle is hein.taxfoundation/ffddixz0001 and id is 1 raw text is: November 16, 2012
No. 338
The Territorial Taxation Experience in the
Netherlands
By
Tax Foundation Staff
This is the fifth case study in a series on territorial tax systems in other countries. The intent of the study is
to see what lessons the U.S. can learn from other countries' experiences and to evaluate the validity of some
of the fears critics express when discussing what would result if the U.S. were to move to a territorial system.
Companies that are healthy and grow internationally will be able to capitalize on opportunities that solely
domestically operating companies will not be able to seize on. This will have a positive impact on profits and
employment in the residence state. In that sense one can say that if international expansion is good for the
company, it is good for the country.-Paul Vlaanderen, Director of International Tax Policy and Legislation,
Netherlands Ministry of Finance, 20021
The origins of the Dutch dividend exemption go back to 1893, when it became one of the pillars of the
tax system.2 According to Paul Vlaanderen, former director of Dutch international tax policy, there are two
reasons that the Netherlands has always exempted foreign profits. First, the country respects the fiscal
sovereignty of other nations to tax the business profits realized within their own jurisdictions (the benefit
principle). Second, the Netherlands recognizes that its domestic market of 16 million people is too small to
sustain growth for its innovative companies. To penetrate foreign markets and gain global market share,
companies must be able to compete with other multinationals on a level playing field and from an equal
tax position.'3
The exemption for active income applies to a broad swath of investment types, including some portfolio
investment and financing activity. While investment institutions specifically are not eligible for the
exemption, passive investment income may be exempt if it passes a subordination rejuirement, meaning
1 See Paul Vlaanderen, Why Exempt Foreign Business Profits?, 25 TAX NOTES INTERNATIONAL 1095, 1099 (Mar. 11, 2002).
2 How Other Countries Have Used Tax Reform to Help Their Companies Compete in the Global Market: Hearing Before the H.
Comm. on Ways and Means, 1 12th Gong. (May 24, 2011) (statement of Frank M. Schoon, Partner, Ernst & Young LLP)
huip:/iiww&gpo.govifdsysipkg/CHRG- 11 2hhrg7251i pdfiCHRG- 11 2hhrg723 I0.pdf [hereinafter Schoon Statement].
SSee Vlaanderen, supra note 1, at 1095.](ViewImageLocal?handle=hein.taxfoundation/ffddixz0001&div=1&collection=&method=preview&ext=.png&size=3)