Every third Tuesday in September it is budget day in the Netherlands. Every tax professional is waiting for this day as the new Dutch tax package will be revealed. This year the tax package consists of multiple legislative proposals. In this tax alert we only highlight the most important ones for our clients.
Announcement of relaxation for Dutch dividend withholding tax purposes
In a separate letter with the 2017 Budget it is announced that the Netherlands as of 2018 intends to make pure holding Cooperatives with a member of more than 5% subject to Dutch dividend withholding tax. However, this is combined with an announcement of the general expansion of the exemptions for Dividend withholding tax in case of an active structure and availability of a tax treaty. The exemption does not apply in the case of abuse.
Broadening the base, lowering the rate.
In another letter with the 2017 Budget it is announced that the Dutch government is still intending to reduce the Dutch corporate income tax rate in the future. Combined with implementation of various European and OECD BEPS (Base Erosion and Profit Shifting) initiatives the Netherlands wants to remain competitive as an attractive jurisdiction for international investments. Further studies and proposals with respect to the exact details and financing of the reduction can be expected in the next year.
Changes in corporate income tax rate
In 2018, the first tax bracket of 20% corporate income tax will be extended from EUR 200.000 to EUR 250.000, in 2020 from EUR 250.000 to EUR 300.000 and in 2021 from EUR 300.000 to EUR 350.000. This measure was announced in the letter of July 1, 2016 on the proposed phasing out of the pension in-house.
Nexus approach as additional substance criterium for Dutch Innovationbox
The proposed changes follow the recommendations made in the BEPS final recommendations under BEPS issued by the OECD and recent evaluations on the working of the Dutch innovation box. The changes include a nexus approach and rules to narrow the definition of qualifying intellectual property (IP). The nexus approach entails – briefly – that part of the benefits of intangible assets does not qualify for the innovation, if the taxpayer outsources the research and development within the group outside the Netherlands. The effective tax rate for income attributable to the innovation box would remain unchanged at 5%. New innovation box rules are effective as of 1 January 2017.
The test whether an intangible asset could qualify for the innovationbox is divided in two steps. The first test is whether the research and development led to a so-called S&O certificate. This assures/proves that there is technical innovation. This test applies to both large and small taxpayers. As a second step, larger taxpayers should verify whether there is a second ticket available for the asset. For second tickets we refer to: patents, by their nature similar patent rights as utility models (utility model), plant varieties, orphan drugs and supplementary protection certificates, software and other assets that are not obvious and are new and useful.
Minor amendments to various interest deductibility rules
In the Dutch anti-base erosion rules (10a CITA) an expansion of the term related person will be included to joint groups. This is aimed mainly at private equity acquisitions where the individual investors only hold a less than 1/3rd interest, meaning the Dutch anti base erosion rules do not apply, but as a joint group would be considered a related person and potentially a limitation of the interest deductibility based on the anti-base erosion rules.
There is also a further expansion of the acquisition debt rules (15ad CITA) announced that effectively close a number of exceptions to the rules. For instance the refinancing of the debt at the level of the Dutch target included in the fiscal unity is now under circumstances covered by the rules. Also internal transfers aimed at restarting the debt being deductible are now not possible anymore. And finally the Budget includes a (partial) reduction of the grandfathering rules that applied for existing structures. If the fiscal unity is included in a larger fiscal unity after January 1, 2017 the acquisition debt rules should again be reviewed, as the grandfathering does not apply in that case.
If you need more additional, more specific information on any of the above, please do not hesitate to contact us.