Indian groups have been building international structures for long enough that the ones now entering Europe rarely arrive naive. What they arrive with instead is a set of expectations shaped by the well-trodden India-Mauritius and India-Singapore routes, and the European entry has to be understood on its own terms rather than by analogy to those. A Dutch holding for European activity is a different instrument from a Mauritius vehicle for inbound Indian investment, and treating them as interchangeable is the first mistake to avoid.
The India-Netherlands treaty
The treaty between India and the Netherlands governs the withholding on dividends, interest and royalties flowing between the two, and its most-favoured-nation history has made the analysis genuinely intricate, with rates that have shifted as India’s other treaties changed. This is not a matter for assumptions; it is a matter for current analysis, applied to the specific flows the structure will generate, with the beneficial ownership and purpose tests set out in our note on treaty access and beneficial ownership firmly in view. A structure priced on an outdated understanding of the treaty rate is a structure that will disappoint.
The convention itself says less than the discussion around it. Under Article 10(2) of the convention signed at New Delhi in 1988, dividends may be taxed in the State of the paying company at no more than 15 per cent of the gross amount where the recipient is the beneficial owner.
The lower rates come from the Protocol’s most-favoured-nation clause, paragraph IV(2). In October 2023 the Supreme Court of India held that a notification under section 90(1) is a mandatory condition for giving effect to a protocol altering existing law, that a same-treatment clause does not by itself integrate the better term, and that the third State had to be an OECD member at the date of its treaty with India. A reduced rate depends on India having notified it, as our note on an Indian group’s European holding sets out.
The Overseas Direct Investment rules
An Indian party investing abroad does so within the Overseas Direct Investment framework, which governs how much can be invested, through what routes, and with what reporting. A European structure that ignores the Indian outbound rules has a defect at its origin, and the Indian compliance is not a formality to be handled later; it shapes what the structure can be. Getting it right also produces the documentation that a European bank will require, which is a recurring theme for every group entering Europe from abroad.
The Overseas Investment Rules notified in August 2022, with the Reserve Bank regulations and directions of the same day, superseded the 2004 regime. Acquiring any unlisted equity capital in a foreign entity is Overseas Direct Investment, as is taking 10 per cent or more of a listed one, or less with control.
Rule 9 requires the foreign entity to be engaged in a bona fide business activity. Rule 19 prohibits ODI into real estate activity, defined as buying and selling real estate or trading in transferable development rights but expressly not the construction of residential or commercial premises for selling or leasing, and bars more than two layers of subsidiaries where it invests back into India. Schedule I caps total financial commitment at 400 per cent of net worth, and the Overseas Investment Directions add prior Reserve Bank approval above one billion US dollars a year.
The Dutch holding has to be built on the Indian outbound rules, not around them. A structure that is compliant where it starts is a structure that can be defended where it lands.
The documentation the Indian side produces
Indian compliance is also a paper trail. Before the first remittance the Indian entity files Form FC with its authorised dealer bank and obtains a Unique Identification Number for the foreign entity, and no remittance is facilitated until it is allotted. Evidence of the investment has to follow within six months, and an Annual Performance Report is filed each year.
Under the approval route the file sent to the Reserve Bank describes the structure: a diagram of the subsidiaries held directly and indirectly with their stakes and status, a valuation certificate for the foreign entity where applicable, and a board resolution. That is most of what a European bank asks for when the holding opens its account.
Why the Netherlands for European activity
For genuinely European activity, acquisitions, operating subsidiaries, a European headquarters, the Netherlands offers what Mauritius and Singapore were never designed to offer: membership of the European Union, access to its directives, and a holding regime built for owning European businesses, described in our note on the participation exemption. An Indian group acquiring across Europe consolidates under a Dutch holding for the same reasons a European group does, and the Indian origin does not change that logic.
The exemption is the load-bearing element. Article 13 of the Corporation Tax Act 1969 keeps the benefits from a participation, and the costs of acquiring or disposing of it, outside the taxable profit, from a 5 per cent holding of the nominal paid-up capital. It is withheld where the participation is held as a portfolio investment, unless that investment qualifies on the subsidiary’s own tax and assets.
Membership supplies the second. Article 5 of Council Directive 2011/96/EU on parent companies and subsidiaries exempts from withholding tax the profits a subsidiary distributes to its parent company, subject to the Directive’s refusal of its benefits to arrangements that are not genuine.
Where the holding is resident
The point that changes most conclusions is not the rate but residence. Under section 6(10) of the Income-tax Act, 2025, in force since 1 April 2026, a company is resident in India if it is an Indian company or if its place of effective management is in India in that tax year, defined as the place where the key management and commercial decisions for the business as a whole are, in substance, made.
A Dutch holding whose board meets in Amsterdam while its decisions are in substance made in India is resident in both States, and the convention does not rescue it. The synthesised text published by the Netherlands records that paragraph 1 of Article 4 of the multilateral convention replaces Article 4(3) of the treaty: the competent authorities are to endeavour to agree the State of residence, having regard to the place of effective management, the place of incorporation and any other relevant factor, and without agreement no relief or exemption under the convention is available.
So holding a company’s place of management in the Netherlands is a question of conduct: who set the agenda, who signed and where, and whether the Dutch directors decided or ratified a decision taken elsewhere.
Substance the group has to mean
Indian groups accustomed to lighter-touch offshore vehicles sometimes underestimate the substance a Dutch holding requires. The requirement, set out in our note on Dutch substance requirements, is real: resident directors, genuine decision-making in the Netherlands, and a presence scaled to what the holding does. For a group building actual European operations this is natural, because the operations supply the substance. For a group hoping to use the Netherlands as a conduit without genuine presence, it is a wall, and it is meant to be.
Dutch law goes beyond a count of directors where the holding also finances the group. Article 8c of the Corporation Tax Act leaves interest and royalties received from and paid to group companies out of the profit where the taxpayer runs no real risk, and treats the risk as real where the equity carried against it is at least the lower of 1 per cent of the loans outstanding or two million euros.
The mailbox company is what these rules are aimed at. The cost of substance is budgeted in advance; the cost of failing is discovered in an audit, on the full amount.
The purpose tests above the structure
Two purpose tests sit above the structure. Chapter XI of the Income-tax Act, 2025 allows an arrangement to be declared an impermissible avoidance arrangement where its main purpose is a tax benefit and it also creates rights not ordinarily created between persons dealing at arm’s length, misuses the Act, lacks commercial substance, or is carried out in a manner not ordinarily employed for bona fide purposes.
The consequences reach the structure: section 181 allows them to be determined as deemed appropriate, expressly including denial of a treaty benefit and disregarding a corporate structure. Section 159 applies the chapter even where it is not beneficial to the taxpayer.
The convention carries the second. The same synthesised text records that the principal purposes test in Article 7(1) of the multilateral convention applies to and supersedes the provisions of the convention with India, for Dutch taxes withheld at source on amounts paid from 1 January 2020.
Repatriation planned from the start
How profits move from the European operations, up through the Dutch holding, and back to India has to be designed before the first acquisition, because retrofitting a repatriation path onto a structure built without one is expensive. The Dutch dividend withholding position, the treaty rate, and the Indian tax treatment of the receipts all have to be modelled together. Our note on Dutch withholding tax sets out the European side; the Indian side has to be run in parallel, by advisers who are looking at the same structure.
The Dutch leg runs first. Dividend tax amounts to 15 per cent of the proceeds under Article 5 of the Dividend Tax Act 1965, but Article 4(2) removes the obligation to withhold where the recipient sits in a State with which the Netherlands has a convention providing for dividends, which India is, and holds an interest to which the participation exemption would have applied had it been established in the Netherlands.
The relief is conditional. Article 4(4) puts the burden on the recipient to make plausible that it is the beneficial owner, and Article 4(3) withdraws it where the interest is held with the main purpose of avoiding the levy of tax on another and the arrangement is artificial. The Withholding Tax Act 2021 carries the same test into a separate charge at the highest rate of Dutch corporation tax, which the Belastingdienst puts at 25.8 per cent for 2026.
The Indian leg is a different calculation. The receipt is taxable in the hands of the Indian parent, and relief for Dutch tax arrives as a credit rather than an exemption: paragraph 4 of Article 23 allows a deduction equal to the income tax paid in the Netherlands, capped at the Indian tax attributable to that income.
Montclare runs a dedicated Asia desk, structuring the corporate, tax and holding architecture for groups and families entering Europe through the Netherlands. Our services are set out on our services page.
This article is informational and does not constitute tax or legal advice. The treatment of any structure depends on its facts and on the law of each jurisdiction involved. Each engagement is subject to scope and applicable regulation.