Traditionally on the third Tuesday of September, the Dutch government proposes its Tax Plan (Belastingplan) to the Parliament for the years 2020 and onwards. This Tax Alert will highlight the main proposals. Have a look at the proposals and do a quick check to see if the tax position of your international company will change in the next years.
Corporate income tax rates
Despite the fact that on Budget Day 2019 it was decided that the top rate would be reduced to 22.55 per cent in 2020 and 20.5 per cent in 2021, the rate for profit over and above the first EUR 200,000 will continue to be 25 per cent as of 1 January 2020. As from 1 January 2021 the applicable tax rate will be reduced to 21.7%. The decrease in the rate for the first EUR 200,000 has not been changed (to 16.5 per cent in 2020 and 15 per cent in 2021).
|Profit up to and including € 200,000
|Profit up to and including € 200,000
Conditional withholding tax on interest and royalties
Currently, the Netherlands does not impose a withholding tax on interest and royalties. As of 1 January 2021 a withholding tax will be introduced on payments to related entities (or their permanent establishments to which such payments can be attributed) in low tax jurisdictions (jurisdictions in which such payments are subject to no tax or a tax rate of less than 9%) as well as jurisdictions that are regarded as non-cooperative jurisdictions by the EU. Furthermore, the withholding tax will be levied in abusive situations. According to the legislative proposal there is abuse in case an entity is interposed with the purpose or one of the purposes to avoid the levy of withholding tax and there is an artificial structure or transaction.
The withholding tax targets interest and royalty payments to related entities whereby control (more than 50% voting rights) is the relevant criterion.
The withholding tax will be levied at a rate equal to the highest rate of Dutch Corporate Income Tax in the current year. For 2021 this rate is proposed at 21.7 per cent. The withholding tax rate may also be reduced by a tax treaty, if applicable.
Definition of permanent establishment/permanent representative
A legal definition of permanent establishment and permanent representative will be introduced in domestic legislation with the definition used for the purposes of an applicable tax treaty concluded by the Netherlands. This proposal is aligning the domestic concept of a permanent establishment with the definition used for the purposes of an applicable tax treaty concluded by the Netherlands. For non-treaty countries, the legal definition will be used which is in accordance with the OECD Model Tax Convention 2017.
Until recently, the substance requirements were deemed to be a safe-harbour in the anti-abuse provisions of the Controlled Foreign Company rule, the dividend withholding tax exemption and the foreign substantial interest rule. When fulfilling the requirements of having a payroll of € 100,000 and having an office space at its disposal for at least 24 months, group structures were deemed not be artificial. As a result of the so-called “Danish beneficial ownership cases” of the CJEU, this safe-harbour threshold is reversed. This implies that the tax authority can still argue that there is tax abuse even when the two requirements are fulfilled. The same amendment applies to the future withholding tax on interest and royalty payments.
Also in the area of procedural law certain amendments are proposed. A positive amendment in this respect is the amendment of the tax interest calculation period. Currently, tax interest can be calculated even in case companies file their corporate income tax return before the deadline. The tax interest calculation period will however be aligned with the filing deadline of the corporate income tax return. Another procedural amendment is envisioned for corporate income tax returns. This amendment is however less favorable for the tax payer. The government announced that the payment discount when paying the amount due on the final corporate income tax assessment at once will be abolished per 2021. Furthermore, it was announced that penalty payments will no longer be deductible from the taxable profit.
Further proposals to come
Liquidation loss scheme
This spring, the Dutch parliament presented a draft bill to amend the liquidation loss scheme for corporate income tax. The state secretary of finance has announced that the government intends to amend the liquidation and termination loss scheme in line with the principles of that proposal. The bill is not a part of the 2020 Tax Plan and will probably not be debated in parliament until next year.
Innovation box regime
The government intends to increase the effective tax rate under the Innovation Box regime from 7% to 9% as from 2021.
Video: International tax measures