Tax Alert: Tax Plan 2020

Alert, Oct. 1, 2019

 Introduction

On September 17, 2019, the Dutch government published its Tax Plan 2020 package. The Tax Plan 2020 package introduces various amendments to the Dutch tax laws and includes the following bills:

  • Tax Plan 2020;
  • Other Tax Measures 2020;
  • Climate Agreement Tax Measures Act;
  • Withholding Tax Act 2021 (on interest and royalties);
  • Abolition of Tax Deductions for Educational Expenses Act;
  • Implementation of the Directive on Harmonisation and Simplification of Trade between Member States Act.

Currently, the Tax Plan 2020 package is still subject to discussion in the Dutch House of Representatives and it is aimed to enter into force on January 1, 2020. Most of the measures will become effective on 1 January 2020. However, the proposed Withholding Tax Act 2021, for example, will only take effect on January 1, 2021.

This alert will focus on the following aspects of the Tax Plan 2020 and the Withholding Tax Act 2021:

  • Corporate Income Tax;Real estate transfer tax;
    • Change in corporate income tax rates;
    • Change in effective tax rate for the innovation box;
    • Change of the safe harbour rules on substance;
    • New permanent establishment definition;
    • Minimum capital rule for banks and insurers;
    • Conditional withholding tax on interest and royalties;
  • Other tax developments.

 

  1. 1.            Corporate Income Tax (“CIT”)

-          Change in corporate income tax rates

The Dutch government has announced that the higher CIT-rate – contrary to what was previously intended – will not be reduced to 23.9% in 2020. In addition, the Dutch government has proposed a 1.2 percentage point reduction in the higher CIT-rates in the situation as of 2021 compared to the Tax Plan 2019. As a result, the higher CIT-rate will remain 25% in 2020 and will be reduced to 21.7% as of January 1, 2021. The anticipated reduction of the lower corporate income tax rate will not be adjusted and that rate will be reduced in two steps down to 15% as from January 1, 2021.

In summary:

 Taxable profits

2019

2020

2021

≤ EUR 200,000

19.0%

16.5%

15.0%

> EUR 200,000

25.0%

25.0%

21.7%


-          Change in effective tax rate for the innovation box

The effective tax rate on income attributable to the innovation box regime will increase from 7% to 9% as of 2021.

-          Change of the safe harbour rules on substance

In light of several European Court of Justice judgments, the Dutch safe harbour rules on substance in the corporate income tax and dividend withholding tax will be amended. This has been confirmed in the Tax Plan 2020, which states that the use of intermediate holding companies – despite meeting the current substance criteria – may still be challenged by the Dutch tax authorities as abusive. This may be the case if it can be proven that the motive for interposing the intermediate holding company was the avoidance/reduction of Dutch dividend withholding tax or personal income tax, and in addition that the structure was not established on valid business reasons that reflect an economic reality.

-          New permanent establishment definition

A uniform definition of the concept of permanent establishment will be added to the Dutch Corporate Income Tax Act. The adjustment includes certain permanent establishment situations in domestic law which are in line with the provisions of the 2017 OECD Model Tax Convention. In case a double tax treaty is applicable, the permanent establishment definition of that tax treaty will apply for domestic tax purposes.

-          Minimum capital rule for banks and insurers

A new interest deduction limitation will be introduced that targets Dutch tax-resident regulated banks and insurance companies or Dutch branches of foreign banks and insurance companies, insofar as they are not sufficiently capitalized with equity. The measure will limit interest deductions for banks and insurers in case of an equity gap, i.e., a limitation of the interest deduction insofar as a bank’s debt exceeds 92% of the banks total assets.

-          Conditional withholding tax on interest and royalties

The Dutch government has proposed a conditional withholding tax on outgoing interest and royalties paid to affiliated entities located in ‘tax havens’ and in situations where tax evasion is present. This new withholding tax on interest and royalties paid by Dutch domiciled entities to affiliated entities located in ‘tax havens’ and in situations where tax evasion is present shall be implemented on January 1, 2021. In this respect, entities are considered affiliated if the recipient entity (either directly or indirectly via a third party) effectively controls the paying entity (e.g. >50% of the voting rights). Furthermore, a ‘tax haven’ is defined as a jurisdiction with a statutory corporate income tax rate of less than 9% or as a jurisdiction included on the EU-list of non-cooperative jurisdictions.

No exception in case of interest deduction limitation

No exception shall be made for relevant interest or royalties subject to an anti-abuse provision prohibiting deduction for corporate income tax purposes (i.e. even if the interest and/or royalty paid is not tax deductible in the Netherlands, withholding tax may be levied).

New formal liability provisions

A possibility to impose additional tax assessments has been specifically proposed for the withholding tax, under which the additional withholding tax assessment can be imposed on both the withholding agent and the tax payer. Furthermore, if any additional withholding tax cannot be collected with the agent or the tax payer, the directors of the withholding agent may be held liable for the withholding tax due.

  1. 2.            Real estate transfer tax

The Dutch government proposes to increase the standard rate of the real estate transfer tax from 6% to 7% as of January 1, 2021. The standard tax rate applies to the transfer of non-residential properties and this includes office buildings, commercial premises and land intended for residential construction and hotels and guesthouses. The reduced tax rate of 2% will still be applicable to the transfer of residential properties.

  1. 3.            Other tax aspects

There are several other tax aspects not explicitly part of the 2020 Tax Plan package but still relevant in terms timing and implementation. Some of these tax aspects are briefly discussed below.

-          Limitation of the liquidation and cessation loss scheme

The liquidation loss regime will be limited to the liquidation of subsidiaries that are resident for tax purposes of EU/EEA Member States (geographical restriction), in which the Dutch resident taxpayer has a qualifying interest (more than 25%; substantive restriction), whereas the liquidation must be completed within three years (temporal restriction) after the date the subsidiary ceased its activities (or within three years after the decision to cease the activities). Liquidation losses up to and including EUR 1,000,000 remain tax deductible for shareholders of at least 5%, wherever the liquidated subsidiary is located. The expected effective date of this expected proposal is January 1, 2021.

-          Act implementing ATAD2

On July 2, 2019, the Dutch government published a legislative proposal on the implementation of the EU Anti-Tax Avoidance Directive 2 ("ATAD 2") in Dutch tax law. The main objective of ATAD 2 is to eliminate hybrid mismatches by neutralizing their tax effects. No amendments to the already published ATAD 2 proposal have been released on budget day. The expectation is that this law will be passed this year and will become effective as of January 1, 2020.

-          Fiscal unity: per element approach

On February 22, 2018, the Court of Justice of the European Union (CJEU) rendered judgment on the Dutch CIT fiscal unity regime. In response to this, the previously announced bill on the Fiscal Unity Emergency Repair Act was presented to the Lower House on June 4, 2018, with its content being made known on June 6, 2018. As previously announced, most of the elements of the bill have retroactive effect to 11.00 a.m. on October 25, 2017. As a consequence of the bill, certain provisions in the Dutch CIT Act and the Dutch dividend withholding tax Act will have to be applied as if there is no fiscal unity (per element approach).

Next steps

Please note that the proposals as set forward in the Plan – including the reconsideration of the dividend tax proposal and the phased reduction of the higher CIT-rate – are still subject to possible amendments.

If you have questions on how the Plan will affect your business, please do not hesitate to contact us.

Richard Smeding – smeding@wlp-law.com

Gerwin de Wilde – dewilde@wlp-law.com

 

October 1, 2019