Although some of the plans had been announced previously, the International Tax Policy Letter firmly confirms that the Dutch government will no longer support, neither through legislation nor administrative practice, the use of the Netherlands in international structures aimed at base erosion. It represents what seems to be the culmination of a shift in the Netherlands' international tax policy, as a result of international pressure from the OECD, the EU, trading partners and domestic public opinion. The Dutch State Secretary of Finance also announced emergency legislation, to be applied with retroactive effect, with respect to the fiscal unity regime (the Fiscal Unity Letter) to limit the impact on the government budget of a decision rendered by the European Court of Justice on 22 February 2018. Key aspects of the International Tax Policy Letter and the Fiscal Unity Letter are: The International Tax Policy Letter The International Tax Policy Letter describes the following main concrete measures and actions:

• The introduction of a conditional withholding tax on intra-group dividends (from 2020, when dividend withholding tax will generally be abolished) and intra-group interest and royalty payments (from 2021) by Dutch companies to low-tax jurisdictions and in abusive situations. Low tax jurisdictions includes those with a low statutory tax rate, as well as non-cooperative jurisdictions. Abusive situations are referred to as situations in which payments are indirectly made to low tax jurisdictions by entering into artificial arrangements (presumably back-to-back type situations). The applicable withholding tax rates is not yet known.
• Imposing stricter substance requirements (New Substance Requirements) for issuing advance tax rulings and advance pricing agreements from 2019, by requiring applicants to incur at least EUR 100,000 in annual payroll expenses and to have office space available in the Netherlands for at least 24 months.
• Expanding the scope of automatic international exchange of information to include Dutch resident holding companies (presently not subject to international automatic exchange of information) and Dutch resident financial service companies that do not meet the New Substance requirements.
• A new revision of Dutch tax treaty policy, last revised in 2011; presumably, the revised tax treaty policy will reflect the positions taken by the Netherlands in respect of the Multilateral Instrument.
• A study of possible amendments to the application of the arm's length principle, in particular with respect to imputed deductions when calculating taxable profits. When a taxpayer earns profits in excess of what it should earn when correctly applying the arm's length principle, the excess is treated as non-taxable informal capital (or a disguised tax exempt dividend) for Dutch tax purposes. This adjustment occurs irrespective of whether the excess is taxed elsewhere, and therefore often results in double non-taxation. Presumably, the study will reconsider the appropriateness of such imputed deductions from the taxable profit.
• A study will begin in 2020 to look at possibilities to deny the participation exemption for holding companies that do not have (sufficient) substance in the Netherlands.
• Further guidance on the implementation of the EU Anti-Tax Avoidance Directives (ATAD I & II); 1. The introduction of a safe harbour for companies qualifying as controlled foreign companies (CFCs): no pick-up of CFC income will be required if a CFC meets the New Substance Requirements. 2. Accelerated implementation of the anti-hybrid provisions of ATAD II: the anti-reverse hybrid rules, mainly relevant with respect to CV/BV structures, will be implemented as of 1 January 2020. The Netherlands will not make use of the optional extended implementation deadline of 1 January 2022. 3. Confirmation that the safe harbour for deductible interest in the earning stripping limitation rule will be set at EUR 1,000,000 rather than the EUR 3,000,000 permitted under ATAD I, and that the Netherlands will not implement a group exception permitted under ATAD I.

The Fiscal Unity Letter On 22 February 2018, the Dutch State Secretary of Finance published a letter announcing emergency legislation, to be published in the second quarter of 2018, that will apply with retroactive effect from 25 October 2017 and that will deny several benefits of the fiscal unity regime that are currently available. The announcement of the emergency legislation is in response to the judgment of the European Court of Justice (ECJ) of 22 February 2018 (C-398/16). The ECJ confirmed that the application of an interest deduction limitation to transactions that occur between a Dutch resident taxpayer and its EU subsidiary is an unjustified breach of the freedom of establishment, because that limitation does not apply to the same transaction between two Dutch resident taxpayers that could form a fiscal unity. Therefore, the interest paid in relation to the transactions with EU subsidiaries should be deductible as well, according to the ECJ. Although the judgment of the ECJ deals with the application of article 10(a) of the Dutch Corporate Income Tax Act 1969 (CITA), its impact is expected to be much wider and cover several other provisions of the CITA and thus have a major impact on Dutch corporate tax revenue. The Dutch State Secretary of Finance has therefore announced emergency legislation. The emergency legislation will require a fiscal unity to apply article 10(a) CITA and certain other provisions which are also incompatible with EU law on a company-by-company basis, in the same way as these provisions would apply with respect to EU subsidiaries, i.e., in this respect disregarding the existence of the fiscal unity notwithstanding the changing legislation. Taxpayers may claim the benefits of the ECJ's decision until 25 October 2017 for any tax book years not yet finally assessed. Nevertheless, the emergency legislation will likely result in significant increased tax charges for taxpayers and the need to restructure intercompany relationships within existing fiscal unities. In addition, the emergency legislation is likely to cause a significant increase in the administrative burden as transactions within the fiscal unity will have to be traced, not only in the future but also for the past, in order to assess the applicability of the provisions of the emergency legislation. The decision of the ECJ essentially marks an end to the fiscal unity regime that has been part of CITA since 1969. The State Secretary of Finance has announced that a future-proof group taxation regime will be designed to replace the current fiscal unity regime. This process is expected to take several years. In the meantime, the emergency legislation will be applicable.