As of the 17th of December 2019, the Senate adopted the 2020 tax plan. Sal Partners have provided an overview of some of the critical measures facing multinationals that have entered into force as of 2020 and will come into effect as of January 1st 2020
- Income tax changes
- ETR innovation box amendment
- Liquidation loss regime amendment
- Implementation of ATAD II
- Definition of permanent establishment /representative
- Interest deduction rule for banks and insurance companies
- Amendment to the anti-abuse regulations concerning CIT/DWT
- DAC 6
- Introduction of conditional withholding tax on interest and royalties
- EU VAT quick fixes directive implementation
- e-publications VAT rate deduction
- Transfer tax rate change
INCOME TAX CHANGES
Taxable profits less than/equal to €200,000: 2019 19% | 2020 16.5% | 2021 15%
Taxable profits greater than €200,000: 2019 25% | 2020 25% | 2021 21.7%
ETR INNOVATION BOX AMENDMENT
The effective tax rate on income attributable to the innovation box regime will change from 7% to 9% as of 2021.
LIQUIDATION LOSS REGIME AMENDMENT
Come January 1st, 2021, the deductibility of a liquidation loss is to be limited. The amount of liquidation loss that remains deductible increases from EUR 1 million to EUR 5 million and will be limited to subsidiaries that are resident for tax purposes of EU/EEA Member States in which the Dutch resident taxpayer has a qualifying interest (more than 50%; substantive restriction), where the liquidation must be completed within three years (temporal restriction).
IMPLEMENTATION OF ATAD II
ATAD II, the European directive aimed at combatting undesirable tax effects on hybrid mismatches in cross-border situations, seeks to remove any advantage gained through such mismatches (which occur due to EU countries assessing instruments, entities or tax residencies differently). Whilst the Senate observed the risk of double taxation due to the implementation of ATAD I & II, the legislation must be proportionate to ensure the business environment remains attractive.
DEFINITION OF PERMANENT ESTABLISHMENT/REPRESENTATIVE
The Dutch government has proposed a proposed amendment to the definition of an inbound permanent establishment to ensure alignment with the choices made concerning the MLI (Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting) In the case of a jurisdiction with which the Netherlands does not have a tax treaty; reference is made to the definition of a permanent establishment in the relevant tax treaty, if not, the definition is in line with the recommendations of the OECD BEPS Action 7 Final Report.
(6) INTEREST DEDUCTION RULE FOR BANKS AND INSURANCE COMPANIES
The minimum capital rule limits the interest deduction for Dutch corporate income tax purposes for banks and insurers to the extent they have excessive debt.
Under these rules, (8 -/- Leverage Ratio) / (100 -/- Leverage Ratio) of a bank’s interest expense is non-deductible for CIT purposes, where the Leverage Ratio can be no higher than 8. For insurance companies, the ratio is (8 -/- Equity Ratio) / (100 -/- Equity Ratio), where the Equity Ratio can be no higher than 8.
Such a rule will apply to those banks and insurers who hold a licence or notice for a business of banking or insurance issued under the Dutch Financial Supervision Act (Wet op het financieel toezicht).
AMENDMENT TO THE ANTI-ABUSE RULES CONCERNING CIT/DWT
January 1st, 2020, saw an amendment to the Dutch provisions to qualify for the Dutch dividend withholding tax (DWT) exemption (or to disqualify as a non-resident corporate taxpayer). Such amendment followed a set of Danish cases before the European Court of Justice, a review which concluded the antiabuse rules were no longer in line with EU law. Under such regulations, the relevant substance requirements are decisive for the burden of proof and no longer a safe harbour for certain foreign intermediate companies in the EU Member States and treaty countries. Failure to meet such requirements indicates a presumption of an abusive situation unless the relevant taxpayer can demonstrate no abusive situation. It is noted that the Dutch tax authorities would still be able to prove that an abusive situation exists even if the relevant substance requirements are met.
DAC 6
DAC 6 imposes mandatory reporting of cross-border arrangements to increase transparency levels as governments look to counter tax avoidance strategies. The legislation relates to all taxes except VAT, import, and excise duties. Although the bill will come into effect as of 1 July 2020, it will retroactively affect 25 June 2018.
INTRODUCTION OF CONDITIONAL WITHHOLDING TAX ON INTEREST AND ROYALTIES
It is aimed at associated enterprises which levy no tax on profits or a statutory rate of less than 9% or are on the list of EU non-cooperative jurisdictions. The proposal outlines examples of structures deemed to be abusive.
EU VAT QUICK FIXES DIRECTIVE IMPLEMENTATION
Amendments to the Dutch VAT legislation to allow four EU VAT quick fixes aimed to simplify intra-EU trade came into effect as of January 1, 2020, and concern the following areas:
- VAT identification number – A material requirement is required to benefit from a zero VAT rate for the intra-EU supply of goods
- Proof of intra-EU supply – Documentary evidence is required to claim a zero VAT rate for intra-EU supplies
- Chain transactions. New regulations aimed at increasing legal certainty concerning the VAT treatment of chain transactions means that the delivery to the broker is regarded as the intraCommunity delivery charged with the zero rate, provided that this broker arranges the transport.
- Call-off stock – The proposal provides a simplified treatment for call-off stock arrangements where a seller transfers stock to a warehouse at the disposal of a known customer in another member state.
E-PUBLICATIONS VAT RATE DEDUCTION
Since January, the reduced VAT rate (9%) will be introduced to the supply of e-publications and granting access to news websites. Following the amendment to the VAT directive, this category will be extended to include digital publications in addition to the previous paper publications.
TRANSFER TAX RATE CHANGE
The standard RETT rate of 6% for the acquisition of Dutch real estate will increase to 7% as of 2021. The reduced RETT rate of 2% for residential real estate will continue to apply.
CONCLUSION
The 2020 tax plan has highlighted the Government’s intent concerning the counteraction of aggressive tax planning. At the same time, the Government aims to improve the business climate by reducing tax rates to promote the Netherlands as an attractive market for new businesses.
As the tax landscape continues to evolve (especially given the notable impact of the OECD’s BEPS Project, the European ATAD projects and the recent US tax reform), organisations must monitor their current structures, taking action where required to avoid tax leakage.