The Dutch cooperative is still introduced to foreign investors as the vehicle that avoids dividend withholding tax. That description was accurate once. It stopped being accurate on 1 January 2018, when the Wet inhoudingsplicht houdstercoöperatie en uitbreiding inhoudingsvrijstelling brought holding cooperatives inside the charge, and the rule that replaced it is narrower and more mechanical than either its promoters or its critics usually admit. A cooperative can indeed sit outside the Dutch dividend withholding tax where a BV cannot. It can also pull a member into a charge that the same investor would never have encountered through a BV. Which of the two happens is settled by two definitions in the Wet op de dividendbelasting 1965. Standing outside that Act is not the same as standing outside Dutch withholding tax altogether, because the conditional withholding tax introduced by the Wet bronbelasting 2021 reaches cooperatives on a test of its own, and that one makes no distinction between a cooperative and a BV.
The question is worth getting right because the cooperative is a commercial form before it is a fiscal one. Groups reach for it because members can be admitted and can leave without a notarial deed for each transfer, and because profit can be allocated by the terms of the membership rather than by share class. They then discover the withholding consequences afterwards, which is the wrong order to do it in.
Two vehicles and one difference that is not fiscal
A BV is defined in article 2:175 of the Burgerlijk Wetboek as a legal person with a capital divided into one or more transferable registered shares, and article 2:196 requires a deed executed before a civil law notary practising in the Netherlands for every issue and every transfer of a share. Article 2:194 obliges the management board to keep a register of all shareholders. Economic entitlement follows the share class. That is a virtue in a group with a stable ownership chain and a burden in a vehicle whose participants change.
A cooperative has members and membership rights. Article 2:53 defines it as an association incorporated by notarial deed as a cooperative, whose articles must state as its object the provision of certain material needs of its members under agreements, other than insurance, concluded with them in the business it carries on for that purpose. The same article lets the articles permit it to conclude such agreements with others as well, provided it does not do so to the point where the agreements with members are of merely subordinate significance. Article 2:54 requires incorporation by notarial deed and a name that contains the word coöperatief and ends in the letters W.A., B.A. or U.A.
What the law does not require is a notarial deed for each change of member. Admission, withdrawal and the economic terms attached to each membership are governed by the articles and by the membership agreement, and membership itself is personal unless the articles provide otherwise, because article 2:34 applies to the cooperative through article 2:53a. For a platform through which several investors participate in the same underlying assets, and where investors are expected to enter and exit over its life, that flexibility is the reason the form is chosen. In one mandate we used a cooperative for exactly this reason, and the withholding analysis followed the structure rather than driving it.
The liability position is where descriptions of the form are usually too short. Under article 2:55 those who were members on dissolution, and those who ceased to be members less than a year before it, are liable towards the legal person for a deficit on the basis set out in the articles, in equal shares if the articles set out no basis, and each of them carries a proportionate share of any amount that cannot be recovered from another. Article 2:56 allows the articles to exclude that obligation entirely or to cap it at a maximum, but members can invoke the exclusion or the cap only if the name of the legal person ends in U.A. or B.A. respectively, and a cooperative that has done neither must carry the letters W.A. Exclusion is ordinary in practice and automatic in nothing, and it concerns the obligation to contribute to a deficit rather than acting as a general shield.
None of that is a tax argument, and it is worth separating out. A vehicle sold as a tax product is the first thing an inspector looks at. The defensible cooperative is the one chosen for a reason that survives being explained without reference to withholding tax at all.
Where the withholding actually begins
Article 1 of the Wet op de dividendbelasting 1965 levies the tax on those entitled to the proceeds of shares in, profit certificates of and certain capital contributions and loans to bodies established in the Netherlands, and it reaches those bodies through a list. Naamloze vennootschappen and besloten vennootschappen met beperkte aansprakelijkheid come first, funds for joint account second, holding cooperatives third, and two further entries cover foreign bodies whose legal form has no Dutch counterpart and reverse hybrid entities. Article 2 then charges the tax on the proceeds of those shares and rights. The word carrying the weight in the third entry is holding. A cooperative that is not a holding cooperative is not named, and a distribution by it falls outside that Act altogether.
That is the first and largest of the differences. A BV is within the scope of the Act because it is a BV, with no equivalent entry test. Whether tax is actually withheld then depends on the exemptions, and a group that fails them faces the rate in article 5 of the Act, which is 15 per cent of the proceeds.
An operating cooperative, one that trades, manufactures, purchases or supplies, never reaches that question under the 1965 Act. Its distributions carry no dividend withholding tax because that Act does not reach them. This is where the popular description of the cooperative is correct, and also where it stops being useful, because very few international structures use the cooperative to trade.
The holding cooperative test
Article 1, paragraph 8, defines a holding cooperative as a cooperative whose actual activity in the year preceding the moment the proceeds are made available has usually consisted mainly of holding participations within the meaning of article 13 of the Wet op de vennootschapsbelasting 1969, or of financing, directly or indirectly, bodies or individuals connected with the cooperative in the sense of article 10a, paragraphs 4 to 6, of that Act.
Three features of that definition deserve attention. It looks backwards over a year, so the position can change from one distribution to the next. It tests actual activity rather than stated purpose, so the articles of association do not settle it. And it treats intragroup financing as equivalent to holding, which catches the group that places its treasury function in a cooperative believing only shareholdings are caught.
The statute does not itself express the threshold as a percentage. It uses the Dutch words doorgaans and hoofdzakelijk, and leaves their application to the facts. A cooperative sitting close to the line is not in a comfortable position, because the answer can move with the composition of its balance sheet and its income during a year it has already lived through.
Qualifying membership rights and the five per cent line
Being a holding cooperative does not by itself produce a withholding charge. The Act then narrows again. Article 1, paragraph 7, defines a qualifying membership right as a membership right of a member of a holding cooperative that gives, whether alone or together with the membership rights of other members connected with that member in the sense of article 10a, paragraphs 4 to 6, of the Wet op de vennootschapsbelasting 1969, an entitlement to at least 5 per cent of the annual profit of the cooperative or to at least 5 per cent of what is distributed on its liquidation. For this purpose the connection test is read as covering individuals as well as bodies.
Paragraph 2 of the same article equates a qualifying membership right in a holding cooperative with a share in a company, and it is that equation which brings the distribution within the tax. A membership right that does not qualify is not equated. A member whose entitlement sits below the line, with no connected members whose rights aggregate with it, is therefore outside the tax on that distribution. The same investor holding the same economic interest in a BV would be within it, because a BV is caught on its legal form and not on the size of any shareholder’s stake.
This is the honest core of the comparison. For a widely held vehicle with many small participants, the cooperative removes a withholding obligation that a BV would carry. For a vehicle with two or three substantial members it removes nothing, because each holds a qualifying membership right and the aggregation rule closes the obvious response of splitting an interest between related entities.
Where the cooperative attracts what the BV would not
There is a case that runs the other way, and material written to sell the cooperative rarely sets it out. Article 13, paragraph 2, of the Wet op de vennootschapsbelasting 1969 lists what counts as a participation for the purposes of the Dutch participation exemption. Letter a sets the familiar threshold of at least 5 per cent of the nominal paid up capital of a company whose capital is divided wholly or partly into shares. Letter c says something different. Being a member of a cooperative or of an association on a cooperative basis is a participation, with no threshold attached.
For a Dutch corporate member that is a real advantage, though not an unconditional one. A one per cent interest in a cooperative can fall within the participation exemption where a one per cent shareholding in a BV would not. The exemption still has to survive paragraph 9 of the same article, which switches it off for a participation held as an investment unless that participation qualifies under paragraph 11, either because the body is subject to a profit tax amounting to a real levy by Dutch standards or because its assets usually consist for less than half of low taxed passive investments. Groups with small strategic interests in a common vehicle sometimes choose the cooperative for that reason alone.
The difficulty is on the other side of the same coin. The absence of a threshold in the corporate income tax does not carry across to the dividend withholding tax, where the 5 per cent line in article 1, paragraph 7, applies with full force. A structure built on the participation exemption reasoning can therefore find that the withholding analysis follows a different rule. The two provisions are drafted to different designs and are not read together.
The exemption at the level of the member
Where a qualifying membership right exists and the cooperative is a holding cooperative, the withholding exemption in article 4 of the Wet op de dividendbelasting 1965 becomes the operative question. Paragraph 2 removes the obligation to withhold where the recipient is a body established, under the tax law of the state concerned, in another member state of the European Union, in a state party to the Agreement on the European Economic Area, or in a state with which the Netherlands has a double tax treaty providing for dividends, and where the recipient holds an interest to which the participation exemption of article 13 or the participation credit of article 13aa would have applied had it been established in the Netherlands.
Paragraph 3 disapplies that relief in three situations. The one that matters most in practice is the third, where the recipient holds the interest with the avoidance of tax at the level of another as its main purpose or one of its main purposes and there is an artificial arrangement or series of transactions, artificial being defined as not put in place for valid commercial reasons reflecting economic reality. The other two catch a recipient which a treaty concluded by its state of establishment treats as resident outside that circle of states, and a recipient performing a function comparable to an investment institution. Paragraph 4 adds that the relief applies only to proceeds in respect of which the recipient makes it plausible that it is the beneficial owner, and paragraph 7 sets out a dividend stripping case in which a recipient is in any event not regarded as the beneficial owner.
The cooperative and the BV therefore converge at exactly the point where most of the value sits. A member holding a qualifying membership right is in the same analytical position as a shareholder in a BV, facing the same anti-abuse test on the same facts. The choice of vehicle has bought nothing at that level.
Corporate income tax, and the one deduction a BV cannot have
A cooperative is a taxpayer for Dutch corporate income tax on the same footing as a BV and computes its profit under the same rules. Article 22 of the Wet op de vennootschapsbelasting 1969 applies to it as a bracket rather than as a flat rate: 19 per cent on a taxable amount up to 200.000 euro and, above that, 38.000 euro plus 25,8 per cent of the excess. The participation exemption and the arm’s length obligation in article 8b apply on the same conditions.
One deduction has no counterpart for a BV, and its conditions are narrow enough that most international structures never touch it. Article 9, paragraph 1, letter f, lets a cooperative deduct distributions made out of the profit available for the purpose, measured by the transactions performed by or towards its members during the year, capital contributions by members as such being excluded, up to the ceiling computed under paragraph 2 of the same article, and only to the extent that those distributions are allocated to members who are natural persons. A holding cooperative whose members are companies takes nothing from it.
The conditional withholding tax is a different matter, and it is where the cooperative’s reputation for standing outside withholding tax fails completely. It reaches interest, royalties and, since 1 January 2024, dividends, because article 3.4a of the Wet bronbelasting 2021 entered into force on that date and now sits in article 3.1 alongside the other two. For the dividend limb article 1.2 designates the withholding agents, and paragraph 3 of that article confines them to naamloze vennootschappen, besloten vennootschappen, cooperatives and associations on a cooperative basis, funds for joint account, reverse hybrid entities and their foreign equivalents. There is no holding cooperative test in that list and no 5 per cent threshold, and paragraph 4 equates membership rights in a Dutch cooperative with shares. For this tax a cooperative is a withholding agent on exactly the same footing as a BV.
What limits the charge is the recipient rather than the payer. It applies to an affiliated recipient, affiliation being defined in article 1.2 by reference to an interest that allows the activities of a body to be determined, which falls within one of the cases in article 2.1: established in a low taxed jurisdiction, having the proceeds attributed to a permanent establishment in one, interposed with the avoidance of tax at the level of another as a main purpose in an artificial arrangement, or caught by one of the two hybrid situations, with a further case in paragraph 7 for reverse hybrid entities. A low taxed jurisdiction is a state designated by ministerial regulation which, on 1 October of the year preceding the period concerned, either does not subject bodies to a profit tax or does so at a rate below 9 per cent, or which appears on the European Union list of non-cooperative jurisdictions for tax purposes. The rate is fixed by article 4.1 at the highest percentage in article 22 of the corporate income tax act, so 25,8 per cent, and article 5.2 credits against it any dividend withholding tax already withheld on the same proceeds.
Nor does the form change the substance analysis. A cooperative claiming treaty or directive benefits is examined on where its decisions are taken, on who takes them and on whether it has the people and the balance sheet to carry the risks attributed to it. The legal form of the entity is not among the indicators.
What decides it in practice
The cooperative earns its place in three situations. It suits a vehicle with many participants whose individual entitlements fall below 5 per cent, because those participants stay outside the dividend withholding tax of the 1965 Act. It suits a club deal where corporate members hold small strategic interests and want the participation exemption without meeting the 5 per cent shareholding test, provided the membership is not a participation held as an investment that fails the qualifying tests in article 13. And it suits any arrangement where membership changes often enough that the notarial cost of share transfers becomes a real number.
It earns nothing in the case it is most often proposed for, which is a two or three member holding platform above European subsidiaries. There each member holds a qualifying membership right, the cooperative is plainly a holding cooperative, and the analysis lands on the same anti-abuse test that a BV would have faced. The structure has added an unfamiliar legal form to a group whose counterparties, banks and auditors all understand the BV, and has bought no withholding advantage in exchange.
The decision therefore turns on the shape of the ownership rather than on the merits of the form. The variables that settle it are the number of members, the size of their entitlements measured against the 5 per cent line, whether the vehicle will hold participations and finance connected parties or will actually trade, and how often the membership will change. A cooperative chosen for any other reason will have to be explained, and the explanation is harder than the one a BV requires.
This article is informational and does not constitute tax, legal or investment advice. Each engagement is subject to scope and applicable regulation.