Draft Amendment Proposal to the Netherlands’ Tax Treaty Policy on Source Taxation of Services and Its Potential Impact on Turkish Companies Using Netherlands-Based Holding and Financing Structures
The Dutch Ministry of Finance opened for public consultation, on 09.09.2026, a draft providing for amendments to the 2020 Tax Treaty Policy Note (Notitie Fiscaal Verdragsbeleid 2020, NFV 2020) which regulates the Netherlands’ tax treaty policy (the “Draft Amendment Proposal”). The public consultation process will continue until 23.10.2026.
The Draft Amendment Proposal provides for an expansion of the Netherlands’ existing policy regarding source state taxation of payments for cross-border services in tax treaty negotiations to be concluded with developing countries. Accordingly, the current policy and the proposals presented under the Draft Amendment Proposal are summarized below:
Current Policy
Under the current policy set out in NFV 2020, the Netherlands generally opposes source taxation on service payments. As an exception for the least developed countries (“LDC”), the Netherlands may accept a treaty provision allowing source taxation of payments for technical services provided that the services are physically performed in the developing country concerned.
Main Reason for the Draft Amendment Proposal
One of the main reasons for the Netherlands opening this amendment proposal for public consultation is explained as that this policy has become increasingly difficult to maintain in treaty negotiations since many developing countries seek broader source taxing rights over service income. It is stated that this situation has also been observed in negotiations conducted with Uganda, Kenya, Nigeria and Zimbabwe.
In addition, it is stated that, as a result of digitalization and globalization, companies are able to provide products and services without being physically present in a country and, consequently, discussions regarding which state should tax income derived from services have intensified due to the increase in international service transactions. In this context, developing countries argue that the market country should be granted a taxing right over income derived from services provided to persons resident in their countries. Within the same grounds, the UN Model has gradually expanded source-state taxation provisions through the addition of articles relating to payments for services, automated digital services and insurance premiums.
Scope of the Draft Amendment Proposal
The Draft Amendment Proposal proposes changing three limitations in current Dutch treaty policy:
- In terms of scope: the Netherlands would accept a source-state tax on services not only for LDCs, but for all developing countries,
- In terms of types of services: the concession would apply to all services, not just technical services,
- In terms of conditions: the rule that the service must be performed in the developing country would be removed.
In this context, it is stated that such a source-state tax will be accepted only insofar as it forms part of an acceptable overall treaty compromise.
It is also further noted that inclusion of such a provision could lead to overtaxation, since such taxes are generally levied on gross payments rather than net income. Where the source tax cannot be fully credited in the residence state, residual double taxation may arise, increasing the cost of cross-border services and potentially affecting the competitiveness of Dutch service providers.
Accordingly, in order to limit the tax burden arising from this principle as far as possible, (i) any source tax on service payments is to be limited in scope and designed so as to reduce the risk of overtaxation; (ii) the applicable rate is to take into account the expected profit margin on the relevant service; and (iii) taxpayers are, where possible, to be given the option of being taxed on a net-income basis rather than on the gross service fee.
This flexibility is considered necessary to ensure that the Netherlands can continue to conclude and update tax treaties with developing countries, while maintaining a balance between the interests of Dutch businesses, individual taxpayers, and treaty partners.
Potential Effects on Turkish Companies Using Netherlands-Based Holding and Financing Structures
As is known, Turkish groups commonly use Dutch holding and financing companies to structure outbound investments in developing countries. Where such Dutch entities provide management, technical, administrative or other services to operating subsidiaries located in developing countries, the proposed Dutch policy could bring these intra-group service payments within the scope of withholding tax in the subsidiary's jurisdiction.
Accordingly, Turkish groups using Dutch intermediary structures for investments in developing countries should monitor the Netherlands' ongoing and future treaty negotiations and revisions closely, as changes to the underlying DTT network could materially affect the tax efficiency and after-tax returns of both existing and planned structures.
You may access the full original Dutch text of the Draft Amendment Proposal here.
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