Tuesday 15 September was Budget Day in the Netherlands, which saw the country’s 2021 tax plans announced by the Dutch Ministry of Finance. Here, we provide a summary of the most relevant proposals:
- Corporate Income tax rate: The standard Dutch corporate income tax (CIT) rate will remain at 25% (instead of the 21.7% reduction previously agreed). Reduction of the step-up rate to 15% for the first bracket (€245,000 for 2021 and €395,000 for 2022) will proceed as announced
- Innovation box rate: The effective tax rate for income qualifying for the Dutch innovation box will be increased from 7% to 9%
- Anti-base erosion rules: The Dutch anti-base erosion rules will be amended to reduce the possibility of claiming an exemption, for example for FX gains. More specifically, under the anti-base erosion rules, interest costs (including expenses and currency exchange results) are non-deductible under certain conditions. This currently applies to both positive and negative items, meaning the likes of positive currency exchange results are tax exempt. It is now proposed to limit the exemption of such results to the amount of non-deductible costs on that specific loan
- Specific Corona-reserve: Corporate income taxpayers are permitted to form a reserve in their 2019 corporate income tax return for expected losses in the 2020 financial year, provided these losses are the result of the COVID-19 crisis. The loss to be taken into account may not exceed the total loss expected for 2020
- Liquidation loss rules: The liquidation and cessation loss rules have been amended, limiting the situations in which a deductible loss can be claimed after the activities of a subsidiary or permanent establishment have been ceased. A proposal has been published to significantly limit the application scope of the so-called liquidation loss scheme in the participation exemption and the cessation loss scheme for permanent establishments. A temporal restriction has also been introduced meaning that a liquidation or cessation loss can only be utilised within three years after the activities have been (decided to be) terminated
- Anti-hybrid rules: Regarding the anti-hybrid rules and earnings stripping rule: If interest costs are non-deductible based on anti-hybrid rules, these interest costs are not taken into account when calculating the non-deductible interest costs for the earnings stripping rule (also known as the 30% EBITDA interest limitation). However, interest costs are deductible if there is dual included income. Currently, if costs falling within the scope of the anti-hybrid rules consist of interest costs as well as other expenses, it is unclear which part of the interest costs will be deductible due to the dual included income. A proposal has been published providing for a regulation to allocate dual included income pro-rata to interest costs and other expenses
- Tax loss carry forward limitation: A measure has been introduced to limit the tax loss carry forward and carry back in excess of €1 million to a maximum of 50% of the remaining profit (in combination with an unlimited loss relief period). This measure is expected to enter into force on 1 January 2022
- Additonal dividend withholding tax: Finally, there is a bill to introduce an (additional) dividend withholding tax for payments to listed low-tax and non-cooperative jurisdictions (set for the spring of 2021).
Please note that the above proposals and bill will be discussed by parliament, but are expected to be finalised by the end of 2020, taking effect from 2021.
We will keep on monitoring the above and inform our clients of any relevant changes or new proposals. In the meantime, if you have any questions or would like to discuss your corporate service requirements in light of these proposed changes, please don’t hesitate to get in touch with your designated client manager or:
Mark Hofstee Holtrop
Please note that the above is not to be considered in any way as tax advice.