Netherlands: The Netherlands - 2018 Tax Bill Adopted

Last Updated: 9 January 2018
Article by Heico Reinoud, Jurjen Bevers, Marnix Veldhuijzen and Paul Halprin

On 19 December 2017, the Dutch Senate adopted the 2018 Tax Bill as part of the 2018 State's Budget. Hereafter we will describe the main amendments to the Dutch tax laws.

1. CORPORATE INCOME TAX

Interest Deduction Limitation – sharpening of the counter evidence rule

The deduction of interest is in general denied if a Dutch company borrows monies from a group company and uses the monies to invest in the capital of group companies or to reduce its equity. The interest is nevertheless deductible if the company can demonstrate that the transaction as well as the debt financing were entered into for sound business reasons (double business motive test).

On 21 April 2017, the Dutch Supreme Court ruled that a taxpayer already met this test if it could demonstrate that the intra-group debt was indirectly owed to a third party (back-to-back), irrespective of whether the taxpayer was able to demonstrate that the transaction was also based on sound business reasons. The double business motive test was thereby effectively reduced to a single business motive test. The law now explicitly requires that the double business motive test must also be met in case of indirect third party debt financing.

Innovation Box – increase of effective rate

A Dutch company is subject to 20-25% corporate income tax with respect to its worldwide profits. Income and gains derived from self-developed qualifying intangible assets are taxed at a lower effective rate. The effective tax rate is increased from 5% to 7%.

Participation exemption – liquidation loss

On basis of the participation exemption, dividends and capital gains derived from qualifying subsidiaries are exempt from Dutch corporate income tax. Nevertheless, liquidation losses may be deductible. It is now clarified that in case a subsidiary (that does not form part of a fiscal unity) is liquidated and owned a written off receivable on a fiscal unity company, the liquidation loss that is connected with such write off loss is not deductible. This is to avoid that a loss is taken into account twice within a fiscal unity.

Fiscal Unity – write off loss on intra group receivables

In general, a write off loss of a receivable is deductible for Dutch tax purposes. If a fiscal unity company writes off an intra group receivable, such write off loss is no longer deductible if such loss is related to a loss incurred by the fiscal unity. This is to avoid that a loss is taken into account twice within a fiscal unity. This measure combats a situation whereby a fiscal unity parent company provides a loan to a fiscal unity subsidiary through a group company outside the fiscal unity.

Fiscal Unity – fiscal cost price

If a subsidiary does no longer form part of a fiscal unity, the parent company needs to assess the fiscal cost price in its tax books again. The fiscal cost price is relevant to determine a possible liquidation loss, which loss may be deductible. If the market value of the subsidiary is lower than its fiscal equity, the fiscal cost price will be reduced to that lower market value. As a result, the potential deductible liquidation loss will be lower as well.

Fiscal Unity - relief of double taxation

A Dutch company can form a fiscal unity with its 95% or more owned Dutch subsidiary. In case the parent company grants a loan to the subsidiary, and the latter uses the borrowed funds to invest in a foreign permanent establishment (or in foreign real estate), the intercompany loan and interest payments are eliminated in the fiscal consolidation. As a result, the profit derived from the foreign source is higher than for local tax purposes, where the interest due to the parent company is normally taken into account as deductible expense. In such case, the Dutch fiscal unity can only claim relief for double taxation, including the interest expense, so as to avoid a mismatch. This was however not yet the case for rental, lease, royalty and other intra fiscal unity payments. If such payments can be deducted abroad, these payments will now also reduce the Dutch relief for double taxation.

Country-by-Country Report – voluntary filing

A multinational group that has a consolidated revenue of € 750 million or more in FY2015 must file a Country-by-Country Report (CbCR) 2016 within 12 months following the close of its FY2016.

The ultimate parent company is required to submit the CbCR to the tax authorities in the country in which it is resident. However, if that country has not (yet) introduced CbCR legislation, the requirement shifts to the Dutch group company. It is now allowed that the ultimate parent company files the CbCR with its local tax authorities (voluntary filing), provided that certain exchange of information requirements are met. The Dutch company will nevertheless have to notify the Dutch tax authorities as to which entity will prepare and submit the CbCR.

Non-Resident Taxation – new substance requirements

In case a non-resident entity owns 5% or more of the shares in a Dutch company, the capital gain realized upon the sale of shares as well as interest income derived from the Dutch company is not subject to Dutch corporate income tax unless:

  1. the non-resident entity is not interposed for valid commercial reasons that reflect reality; and in addition thereto
  2. the main reason or one of the main reasons for the interposed non-resident entity is to avoid Dutch personal income tax.

In order to avoid that an interposed holding company is regard as artificial (see (i) above), it must meet a number of pre-fixed substance requirements. Reference is made to our Tax Alert of 21 September 2017.

2. DIVIDEND WITHHOLDING TAX

Exemption – tax treaty countries

The Netherlands levies 15% withholding tax in case of dividend distributions. Dividends paid to a parent company that is a tax resident in EEA (including EU) country and that owns 5% or more of the shares in a Dutch company are exempt from withholding tax, provided that such parent company is the beneficial owner of the dividend.

The above exemption is now extended to parent companies in tax treaty countries, provided that such tax treaty contains a dividend article. The exemption does not apply if:

  1. the non-resident entity is not interposed for valid commercial reasons that reflect reality; and in addition thereto
  2. the main reason or one of the main reasons for the interposed non-resident entity is to avoid Dutch dividend withholding tax.

In order to avoid that an interposed holding company is regard as artificial (see (i) above), it must meet a number of pre-fixed substance requirements. Reference is made to our Tax Alert of 21 September 2017.

Holding cooperatives – introduction of withholding tax obligation

By way of default, profit distributions by a Dutch cooperative were not subject to dividend withholding tax. Only in case of abuse of law, the Dutch cooperative had to withhold dividend tax.

In order to eliminate the difference of tax treatment between Dutch holding companies and Dutch holding cooperatives, Dutch holding cooperatives are now obliged to withhold 15% dividend tax in case of profit distributions to members that own an interest of 5% or more. An exemption applies if certain conditions are met (see previous section Exemption).

A cooperative is regarded as 'holding' if 70% or more of its activities consist of owning qualifying participations and/or the (indirect) grant of loans to group companies in the 12 months period preceding the profit distribution. A top holding cooperative of a group that carries out a business enterprise, or a cooperative that has staff that is actively involved in the management of its subsidiaries may not be regarded as holding cooperative. A repayment of contributed capital to a member is not subject to dividend withholding tax.

3. GENERAL TAX ACT

Voluntary disclosure

The voluntary disclosure rules are designed for taxpayers (corporate and individual) with exposure to potential criminal liability and/or civil penalties due to a willful failure to file a correct tax return and pay all tax due. Under the voluntary disclosure regime it is possible to rectify incorrect tax returns without incurring civil penalties or criminal exposure as long as the amended tax return is filed within two years of the original filing. Last year, the Dutch government proposed to abolish the voluntary disclosure regime, however, just before the end of the year this proposal was amended and the voluntary disclosure regime will continue to exist. Only for individuals with unreported income from savings and investments (box 3) will the voluntary disclosures rules no longer be available. Individual taxpayers can for this specific class of (unreported) income therefore no longer benefit from the protection against civil penalties or criminal exposure. For these taxpayers voluntary disclosure will still be considered a mitigating circumstance and voluntary disclosure can therefore still result in a reduction of penalties.

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