Traditionally on the third Tuesday of September, the Dutch government proposes its Tax Plan (Belastingplan) and other important tax measures for the coming years to the Parliament. This Tax Alert will highlight the proposals which are important for international companies. Please read this alert and see if the tax position of your international company will change in the next years.
IN THIS ARTICLE
Corporate income tax rates
On Budget Day 2019 it was announced that per 2021, the upper corporate income tax rate would be reduced to 21.7% whereas the lower would decrease to 15.0%. On Budget Day 2020, the government reversed a part of this plan. In accordance with the previous plan, the lower corporate income tax rate will be reduced to 15.0% in 2021, but the higher corporate income tax rate will remain 25.0%. Simultaneously, it was announced that the bracket of the lower corporate income tax rate will be increased to profits up to and including € 245,000. This will already be implemented in 2021. According to the Budget Day proposal, the first bracket will be even further increased in 2022 to profits up to and including € 395,000.
Liquidation & cessation loss rules
On Budget Day 2020, the legislative proposal on the limitation of the liquidation & cessation loss provision was published. Currently, Dutch companies can – under conditions - fully deduct liquidation losses on participations and cessation losses on permanent establishments. This applies regardless of the location of the participation or permanent establishment. The legislative proposal specifies that liquidation or cessation losses above € 5 million will only be deductible when the participation or the permanent establishment is a resident of an EU Member State. Additionally, the shareholding in the EU participation must exceed 50%. Liquidation losses up to € 5 million will remain fully deductible, regardless where the participation or the permanent establishment is a resident.
Increase rate innovation box
Dutch corporate income tax law includes a preferential regime to promote activities related to investments in innovative activities. This is the Innovation Box regime. For profits meeting the requirements of the innovation box, companies are subject to a reduced corporate income tax rate. On Budget Day 2020, it is announced that the effective rate of the innovation box will increase from 7% to 9% as per January 1, 2021.
Specific interest deduction limitation
In Dutch corporate income tax law there is a specific restriction on costs and currency results regarding intra-group loans which are used for a so-called ‘tainted transaction’ (for example the acquisition of a participation). Considering the fact that positive results for example foreign exchange gains) are also covered by this rule, it is possible that in practice there is an exemption instead of limitation on the deduction. This rule will be adjusted so that the exemption cannot exceed the deduction limitation. The assessment will take place on a loan-by-loan basis.
Under the Corona Crisis Decree, companies subject to corporate income tax have the possibility to create a corona reserve in 2019 for the losses they are expected to incur in 2020 as a result of the corona crisis. On Budget Day 2020 it was announced that this rule will be implemented into legislation.
With determining the taxable result in 2019, a fiscal corona reserve can be created for the so-called 'corona-related loss' or a part thereof which the company expects to incur in 2020. The corona reserve may not exceed the taxable profit of 2019, nor may the reserve exceed the expected net loss for 2020. The fiscal corona reserve should be released in the taxable result in the financial year 2020.
By creating a fiscal corona reserve, a company can already compensate a 2020 loss in 2019. This is earlier than under the regular loss compensation rules.
Job related investment discount
A new measure to stimulate companies that make investments in the Netherlands, is the so called job related investment discount. Under the new measure a percentage of investments made by companies can be deducted from the Dutch wage tax payable. The measure is a temporary measure. The Dutch government will propose a long-term measure with a similar objective at a later stage.
Another measure announced by the government concerns the CO2 tax for companies with installation which are subject to the European Emissions Trading System. Based on the legislative proposal, companies may emit a certain exempt amount of CO2. All CO2 emissions above this threshold will be subject to CO2 taxation. With this measure, the government aims to achieve the objects of the Paris Climate Agreement.
Further proposals to expect
Rules regarding loss compensation
Currently, all tax losses can be carried backwards for one year can be carried forward for a period of six years. On Budget Day 2020, the government announced that it will propose to amend these rules. The government plan specifies that starting from 2022, tax losses can be carried forward indefinitely. However, there will be a limit to the amount of losses which can be offset. If the plans will be implemented into legislation, tax loss compensation will be made dependent upon the taxable profit of the year concerned. Profits up to € 1 million can be fully used to set off losses. In case the taxable profit exceeds €1 million, only 50% of the remaining taxable profit may be used to set off losses. The losses which cannot be offset may be carried forward to the following year.
Limitation settlement of withholding taxes with corporate income tax
On Budget Day 2020, the Dutch government has announced that it will introduce a legislative proposal to limit the settlement of dividend withholding tax and tax on games of chance with corporate income tax. Based on the envisaged measure, withholding taxes can only be offset against corporate income tax due in that year. In case no corporate income tax is due in a year - for example when the company is in a lossmaking position - the surplus of withholding taxes can be carried forward. This new measure could become applicable per 2022.
Arm’s length principle and informal capital
under the current at arm’s length principle it is possible to take a deduction in the Netherlands with respect to an intercompany transaction, regardless whether the affiliated party will include the corresponding income in its taxable base. This could result in a deduction in the Netherlands, while the other country does not or does not entirely include this income in its taxable base. On Budget Day 2020, the government announced that it will prepare a legislative proposal based on which the deduction of intercompany payments is made dependent upon the inclusion in the taxable base of the recipient. A bill regarding this subject is expected to be announced in the spring of 2021.
New fiscal unity regime
In the Netherlands, group companies can under certain conditions file one tax return as a so-called fiscal unity. Also on Budget Day 2020, the Dutch government published a letter in which it describes some of the guiding principles for a future Dutch fiscal unity regime. Some of these principles are:
the same type of entities will have access to the new fiscal unity as currently;
the same shareholding of 95% should apply in order to create a fiscal unity;
creating a fiscal unity should not be compulsory when the requirements are fulfilled, but should remain an option;
within the new fiscal unity regime, all entities should separately determine their tax position. This implies e.g., that the interest deduction rules, and the application of the participation exemption should be examined on a standalone basis. Transactions between fiscal unity entities will be visible for tax purposes. The lower corporate income tax bracket could also be applied per tax payer.
The letter is not yet a legislative proposal and implementation of the new fiscal unity regime could take several years. Additional information on this letter and updates regarding the new fiscal unity regime will be published at a later stage.