Report on a session at the 14th Annual IBA Finance & Capital Markets Tax Conference held in London on 21 January 2025

Session Chair

Reinout de Boer, Stibbe, Amsterdam

Panelists

Jisun Choi, Skadden Arps Slate Meagher & Flom, London
Mariana Díaz-Moro, Gomez-Acebo & Pombo, Madrid
Rachel Fox, Clyde & Co, Dubai
Mathilde Ostertag, GSK Stockmann, Luxembourg City
Andrew Quinn, Maples Group, Dublin
Joshua R Williams, Akin Gump, New York

Reporter

Wieger Kop, Houthoff, Amsterdam

Introduction

The panel discussed the current status of and developments regarding holding companies globally, with a focus on Ireland, Luxembourg, the Netherlands, Spain, the United Arab Emirates, the United Kingdom and the United States. Each speaker provided an update on the main benefits and considerations for holding companies in their jurisdiction, taking into account new developments and particular points to note.

Panel discussion

First, each speaker provided a general overview of the main regimes applicable to holding companies in their jurisdiction. The differences between each jurisdiction’s participation exemption regime and dividend withholding tax regime were discussed. All the jurisdictions included in the discussion generally boast a competitive participation exemption regime, whereby the exemption is generally granted if a holding company owns an interest of between five and ten per cent in a target, although various additional requirements apply in each jurisdiction. The withholding tax regimes on outbound dividends from holding companies are more diverse, with some jurisdictions, such as the UK and UAE, a priori boasting that no withholding taxes are applied to such dividends, whereas other jurisdictions do levy withholding taxes in such cases but grant exemptions when certain additional requirements are met.

Mariana Díaz-Moro kicked-off a more detailed discussion on the matter and addressed the Spanish holding company considerations in more detail. She indicated that the Spanish tax authorities are scrutinising more closely the economic reasons relating to and substance of holding companies (both domestic and international), taking into account the judgment of the Court of Justice of the European Union (CJEU) in the Danish cases. However, the Spanish Supreme Court confirmed in 2024 that the Spanish tax authorities retain the burden of proof with regard to abuse.

Next, Andrew Quinn discussed the new Irish outbound payment rules, which were part of the Irish recovery and resilience plans following the Covid-19 pandemic. Under these rules, a withholding tax of between 20 and 25 per cent will be due on dividends, interest and royalty payments made by Irish resident companies to associated entities in certain ‘zero-tax’ or specified territories, such as the jurisdictions included in the EU’s list of non-cooperative jurisdictions. Quinn discussed various additional rules that are used to determine the recipient of these payments, including look-through measures, and also indicated that additional anti-avoidance measures could apply. Furthermore, Quinn discussed the new Irish participation exemption regime for qualifying foreign dividends. As of 1 January 2025, the old Irish regime was replaced and aligned with the participation exemption regimes in other EU jurisdictions. Irish companies can now apply for the participation exemption if they own an interest of at least five per cent in a subsidiary that is a tax resident of an EU/EEA or treaty state, provided that various additional requirements are met.

In regard to the UK update, Jisun Choi discussed the 2024 case involving BlackRock Group. In this case, the main dispute was about whether a BlackRock holding company entered into a loan agreement with the purpose of generating tax-deductible interest. Although the board members of the holding company were asked to ‘put tax advantage out of their mind’ when approving the loans, the Court nevertheless ruled that the structure was incorporated with an ‘unallowable purpose’ and, therefore, denied the company the interest deduction.

Rachel Fox elaborated on the new general anti-abuse rule (GAAR) that has been introduced in the UAE, whereby tax advantages are denied for transactions or arrangements without a valid commercial reason and that were concluded with the main purpose being to obtain a tax advantage. The UAE tax authorities must demonstrate that the GAAR is applied in a just and reasonable manner.

The UAE GAAR discussion was nicely followed up by Mathilde Ostertag with an update on the Luxembourg GAAR. She discussed a 2024 case according to which the participation exemption was denied in regard to a Luxembourg company in relation to a bonds transaction. Pursuant to the transaction, a Belgian company was able to repay a profit participating loan in kind through the reimbursement of certain notes owned by the Belgian company. These notes were subsequently sold by the Luxembourg entity on the same day. The Luxembourg Court ruled that this combination of transactions entailed a hidden dividend distribution and denied the application for a participation exemption.

Reinout de Boer’s slides complemented his discussion on the guidance issued on dividend stripping and beneficial ownership, whereby the proof of beneficial ownership has now been shifted to the taxpayer. Furthermore, the CJEU has ruled that interest deduction can be denied under the Dutch anti-avoidance rules, despite such interest being at arm’s length. Finally, the Netherlands has also published new tax transparency qualification rules for foreign entities and partnerships and new rules for determining whether entities are related for the purposes of the Dutch conditional withholding tax rules.

Choi then discussed another UK case based on the main purpose test. In this case, Lehman Brothers had assigned a debt claim held by a Cayman Islands company to a third-party Irish company in order to claim withholding tax relief on the interest, whereby certain pricing arrangements were made in connection with the assignment. Although the UK tax authorities challenged the assignment based on the main purpose test, the Upper Tribunal held that the scope of the main purpose test pursuant to the UK–Ireland tax treaty was not as broad as a general main purpose test. As a result, the withholding tax relief was granted in this particular case.

Conclusion

Finally, the panel provided an update on substance-related developments. Quinn indicated that the Unshell Directive proposed by the European Commission is still pending and may be further amended to introduce reporting requirements for shell entities. The updated substance requirements in the UAE were discussed by Fox, whereby she indicated that UAE holding companies are not required to have employees but must hold their board meetings in free zone offices. Joshua R Williams discussed the US limitation on benefits clauses and the various corporate owners that qualify for treaty benefits. He concluded with some final remarks on the Trump administration’s expected position on tax matters, including the potential lowering of US tax rates, the potential expiration of various tax regimes and the potential introduction of tariffs.