Netherlands: The Netherlands And US Agree On Automatic Exchange Of Tax Information

With the recent signing of the FATCA agreement with the US, the Dutch government must now ensure compliance with relevant Dutch privacy law. Dutch financial institutions will no longer need to enter into separate information disclosure arrangements with the US Internal Revenue Service.

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The Netherlands signed a US Foreign Account Tax Compliance Act (FATCA) agreement with the US on 18 December 2013, enabling the automatic exchange of information between the Dutch and US internal revenue services. FATCA aims to prevent US taxpayers from avoiding US tax obligations by imposing information exchange requirements on organisations such as foreign banks and financial institutions. These organisations must enter into an agreement with the US Internal Revenue Service (IRS) to disclose specific information about their US clients. If they fail to do so, certain payments to or from US citizens and companies become taxable at a rate of up to 30%. The fact that these information exchange requirements could violate Dutch privacy laws may hinder compliance with FATCA.

The Dutch government recently entered into an Intergovernmental Agreement with the US, allowing information to be exchanged via the Dutch Revenue Service, rather than directly with the IRS. This agreement also means that the 30% FATCA withholding tax is off the table. The agreement was published in the Treaty Series in the Netherlands on 30 January 2014.

FATCA is expected to take effect on 1 July 2014. Financial institutions will have to check existing and new clients as from that date. The Dutch government supports the automatic exchange of tax information, and the European Commission has made a proposal for a European directive.

As a result of the recent Intergovernmental Agreement, Dutch financial institutions will no longer need to enter into separate agreements with the IRS.

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