By Sylvia Dikmans, Rob Havenga, Paulus Merks & Alexander van der Voort Maarschalk | Houthoff
On Budget Day (Prinsjesdag), traditionally the third Tuesday of September, the Dutch government proposes its Tax Plan (Belastingplan) for the coming year to parliament. The list of legislative proposals is extensive this year and is likely to have a significant impact on existing legislation. These proposals are partially due to recent developments in the EU. We have highlighted the main proposals below.
Adjustments to the corporate income tax rate
On last year’s Budget Day, the Dutch government proposed gradually reducing the corporate income tax rate from 25% to 20.5% on 1 January 2021 for income exceeding EUR 200,000, including capital gains. In its current Tax Plan, the government now proposes maintaining the corporate income tax rate of 25% in 2020 and reducing the applicable rate to 21.7% in 2021.
For taxable income (including capital gains) up to an amount of EUR 200,000, the corporate income tax rate will still be reduced from the currently applicable 19% to 16.5% in 2020 and to 15% in 2021.
Conditional withholding tax on interest and royalties
Currently, the Netherlands does not impose a withholding tax on interest and royalties. A conditional withholding tax is now proposed from 2021 on payments to related entities (or their permanent establishments to which such payments can be attributed) in low tax jurisdictions as well as jurisdictions that are regarded as non-cooperative jurisdictions by the EU. Low tax jurisdictions are jurisdictions in which such payments are subject to no tax or a tax rate of less than 9%. Furthermore, the withholding tax will be levied in abusive situations.
Substance requirements no longer a safe harbour
As a consequence of recent EU law, in particular the European Court of Justice’s judgments of 26 February 2019 (known as the Danish cases), the Dutch substance requirements can no longer be regarded as a safe harbour for the purpose of the applicable anti-abuse legislation. Nevertheless, the government has announced that the substance requirements will continue to be relevant for the burden of proof in the case of national and international tax disputes.
Amendments to the concept of a permanent establishment with respect to the MLI
The government proposes aligning the domestic concept of a permanent establishment with the definition used for the purposes of an applicable tax treaty concluded by the Netherlands. As the Multilateral Instrument became effective for the Netherlands on 1 July 2019, these changes should become effective in respect of certain designated (MLI) tax treaties from 1 January 2020. For non-treaty countries, the government proposes aligning the domestic definition with the most recent OECD Model Tax Convention.
Fines imposed on legal practitioners disclosed
The government has proposed publishing the punitive fines which are imposed on legal practitioners relating to tax evasion and tax fraud on the website of the Dutch tax authorities. This publication will disclose the offender.
Minimum capital banks and insurers
The earnings stripping rule that was introduced on 1 January 2019 generally does not affect the deductibility of interest for banks and insurers as they generally receive interest on a net basis. The government now proposes a minimum capital rule to limit the tax advantages of financing banks and insurers with debt (as compared to equity). This rule limits the deductibility of interest in the case of excessive debt financing (threshold of 92% of the bank or insurer’s balance total). The rule applies equally to banks and insurers that have their seat in the Netherlands as well as foreign banks and insurers with a Dutch subsidiary or branch.
Alignment of tax treatment self-employed persons and employees
The government aims to minimise the differences in the tax treatment of employees and self-employed persons. In that context, it proposes gradually reducing the tax credit for self-employed persons (zelfstandigenaftrek) from EUR 7,280 to EUR 5,000 in 2028 and increasing the tax credit for employees (arbeidskorting).
Labour Cost Scheme
The government proposes amending the threshold of the Labour Cost Scheme (werkkostenregeling). As of 2020, the tax-free budget will be increased from 1.2% to 1.7% of the fiscal wage sum up to EUR 400,000. The tax-free budget is increased with 1.2% of the wage sum exceeding the aforementioned amount.
VAT “quick fixes” for EU cross-border B2B trade
Four quick fixes will be implemented in the Dutch VAT Act to harmonise and simplify cross-border B2B trade between Member States. They refer to:
- a regulation with respect to call-off stock an entrepreneur keeps in another Member State and which will be supplied to a known customer at a later stage;
- a regulation with respect to “chain transactions” on the basis of which it is determined which supply in the chain is regarded as intra-Community supply;
- proof of transport of intra-Community goods to other Member States;
- the status of the VAT-identification number.
As of 1 January 2020, the lower VAT rate of 9% will also apply to the supply of eBooks, newspapers and magazines. The difference between digital and physical publications will therefore be abolished.
Further proposals to come
Liquidation and termination losses
The Tax Plan has also clarified the proposal for new legislation relating to the deduction of liquidation and termination losses, which was introduced by three political parties on 16 April 2019. 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 amendments will most likely not become effective earlier than 2021.
Similarly, the government has announced in the Tax Plan that it intends to increase the effective tax rate under the Innovation Box regime from 7% to 9%. This increase will also most likely not become effective before 2021.
Compliments of Houthoff, a member of the EACCNY