The turnover tax directive has opened up the opportunity for EU Member States in prevention of distortion of competition to decide that a particular service having been performed outside the EU for subsequent sourcing within the Member State’s own territory is to be regarded as having been performed within the Member State itself. The Netherlands has availed itself of this option.
Dutch legislation stipulates that particular services supplied to Dutch-based bodies that do not have entrepreneurial status are deemed to have been performed within the Netherlands. The Tax and Customs Administration by virtue of this stipulation imposed an additional turnover tax assessment on the Dutch-based (private limited-liability) intermediate holding company of an international conglomerate, which holding company had sourced consultancy services from US and Canadian based law firms in connection with the acquisition of a participating interest. The holding company went on to challenge the additional tax assessment, arguing that the Dutch legal stipulation was inconsistent with the provision as per the directive. The Amsterdam Court of Appeal ended up dismissing this view.