On 17th September 2019, the draft budget for 2020 was submitted to the Dutch Parliament, which includes a series of fiscal measures with an effect on both domestic and international taxation. In the latter case, the measures are particularly important due to the role the Netherlands plays in the tax structures of large multinational groups. In fact, the Dutch holding company is a common tool for large corporate groups, in particular those with US capital, through which they control their operating interests in Europe, Latin America and Asia.
All these measures support the growing awareness of governments in their fight against tax planning structures according to the OECD’s BEPS plan.
The main fiscal measures included in the budgets are the following:
Intra-group Interest and Royalty Payments
A 21.7% withholding on intra-group interest and royalty payments is proposed. It will be applied to certain abusive structures or mechanisms and to certain situations where hybrid institutions, such as entities and permanent establishments, are involved.
This withholding tax will be limited both to payments to companies and permanent establishments located in “low tax jurisdictions” (lower than 9%) and in those included in the EU list of non-cooperative jurisdictions. Further, withholding tax applies to certain situations in which payments are made to (reverse) hybrid entities.
The Reduction of the Headline CIT Rate to 2020 Will Be Delayed to 2021
CIT rate it is now proposed to limit the reduction and maintain the headline CIT rate of 25% in 2020 and reduce it to 21.7% in 2021. In this sense the Tax rates will be as follows:
Taxable amount up to EUR 200,000
Taxable amount above EUR 200,000
Domestic Dividend WHT Exemption
It is proposed to amend the anti-abuse rules to apply the domestic dividend WHT exemption. Currently, meeting specific substance requirements is a safe harbor to determine that the arrangement is not abusive. Following the recent EU Court of Justice case law,1 meeting these substance requirements shall no longer function as a safe harbor, but rather as a presumption of proof for non-abusive arrangements as of 1st January 2020. Even if the substance requirements are met, the Dutch tax inspector can demonstrate that an arrangement is abusive. Please note that irrespective of the substance, the taxpayer can via other means demonstrate the non-abusiveness of arrangements.
Modification of the Definition of “Permanent Establishment”
In order to avoid double taxation, the current common definition of permanent establishment for Corporation Tax and for Personal Income Tax will be adapted to the double taxation conventions signed by the Netherlands. If no convention exists, the Netherlands will apply the definition provided by the latest version of the OECD Model Tax Convention.
The proposals announce that the effective tax rate under the innovation box shall be increased from the current 7% to 9% from 1st January 2021.
Currently, liquidation losses with respect to subsidiaries and PEs are deductible under restrictive conditions. Amendment of the liquidation loss rules as of 2021 is announced in the Proposals. A liquidation loss can potentially only be claimed from 2021 onwards in the case of subsidiaries and EPs within EU jurisdictions in which the Dutch taxpayer has a qualifying interest of at least 25%. Furthermore, it must generally be taken within three years of cessation operations or from the time the decision to discontinue operations is taken. Such amendment was also announced previously, and the actual draft legislation will be forthcoming during 2020.
Increase of the Real Estate Transfer Tax
The Dutch Government proposes an increase of the standard real estate acquisition tax rate from 6% to 7% from 1st January 2021. The standard tax rate applies to the purchase of non-residential properties, including office buildings, commercial premises and land used for the construction of residences, hotels and guest houses. The reduced tax rate of 2% will still be applied to the purchase of residential properties.
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