Last week on 17 September 2019 for the occasion of Budget Day the Dutch government presented the 2020 Tax Plan. Please see below the main highlights of the proposed tax measures that are relevant for corporate income taxpayers involved in cross border corporate structures.
Reduction of corporate income tax rates
To enhance the Dutch tax climate, the lower basic corporate income tax (CIT) rate over the first EUR 200,000 of profit will be reduced from 19% to 16.5% in 2020 and to 15% in 2021. The main CIT rate (for profits exceeding EUR 200,000) will be decreased from 25% to 21.7% in 2021. The reduction of the main CIT rate slightly deviates from the percentages proposed earlier.
Introduction of conditional interest & royalty withholding tax
As per 2021 a conditional withholding tax will be introduced on interest and royalty payments effectively paid to low tax jurisdictions (<9% CIT), EU blacklisted jurisdictions or in abusive situations. This conditional withholding tax will only apply to entities (not to private individuals) having (on their own or with others) a controlling influence. The applicable tax rate will be equal to the CIT rate so it will be 21.7% in 2021.
Amendment of anti-abuse provisions (CFC rules, dividend tax exemption and non-resident corporate income tax rules)
As announced earlier, the Dutch anti-abuse provisions included in the Dutch CFC rules, dividend withholding tax exemption and the non-resident corporate income tax rules will be amended in order to align the Dutch anti-abuse rules with case law issued by the Court of Justice of the European Union1 (see our newsletters of 6 May 2019 and 5 July 2019).
Currently the before-mentioned anti-abuse provisions include specific substance requirements for intermediate non-resident holding companies and companies subject to CFC rules. If these substance requirements are met by such intermediate holding company or a CFC company, no artificial arrangement exists which would result in the non-application of the anti-abuse rules under the Dutch dividend withholding tax exemption, non-resident corporate income tax rules and CFC rules.
Under the proposed rules, the relevant substance requirements mentioned would serve as decisive for the burden of proof and no longer as a safe harbor. Not meeting the substance requirements means that there is a presumption of an abusive situation, unless the relevant taxpayer reasonably demonstrates towards the tax authorities that there is no abusive situation.
It is noted that the Dutch tax authorities would still have the possibility to demonstrate that an abusive situation exists even if the relevant substance requirements are met.
Definition of ‘permanent establishment’
The definition of a permanent establishment (PE) for Dutch payroll, personal income tax and CIT will be made compatible with the PE definition of the 2017 OECD Model Convention and the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS (MLI). The new PE definition will include an anti-splitting rule, anti-fragmentation rules and the rules regarding commissionaire PEs.
Earning stripping rules
The Dutch tax inspector has the authority to formalize the amount of non-deductible interest under the application of the earning stripping rules by a taxpayer in a decision which may be subject to objection and appeal. It is now proposed that the decision may be revised by the tax inspector based on a new fact, bad faith or an error that is reasonably apparent to the taxpayer. In addition, the tax inspector will have the authority to issue a decision related to a tax year in which the carried over interest is deducted.
Please note that the proposed legislation still has to be adopted by the House of Representatives and the Senate.
ATAD 2 / DAC 6
The bills in relation to the implementation of the ATAD2 (effective as per 2020) and DAC6 as regards mandatory automatic exchange of information in the field of taxation in relation to reportable cross-border arrangements (effective as per July 2020) are scheduled to be debated along with the proposals sent on Budget Day.
In the past years significant legislative changes have taken place in Dutch tax laws aimed at preventing the use of artificial structures and arrangements and anti-tax avoidance. Examples thereof include the Anti-Base Erosion and Profit Shifting (“BEPS”) Project, the introduction of the MLI and the adoption of the EU Anti-Tax Avoidance Directives. At the same time, the Dutch government tries to improve the business climate for companies with operational activities in the Netherlands by reducing the tax rates in order to benefit companies. The above proposed tax measures are in line with these international developments.
We recommend assessing whether your investment structure meets the current and future requirements. If you have any questions regarding the above, please do not hesitate to contact us.
1The six Danish cases T Danmark (C-116/16), Y Denmark (C-117/16), Luxembourg 1 (C-115/16), X Denmark (C-118/16), C Danmark (C-119/16) and Z Denmark (C-29916)
On 2 July 2019, the Dutch Ministry of Finance published a legislative proposal implementing the
On 15 June, the Dutch State Secretary of Finance (“State Secretary”) reacted to detailed questions from members
On the 25th of April we were honored and proud to have welcomed a delegation of the Ministry of Justice headed