On 15 September 2015, the Dutch government presented its annual budget, which includes the Tax Plan 2016. Taxand Netherlands lists the key changes, which are expected in 2016 for corporate tax (CIT), real estate transfer tax (RETT), wage tax and personal income tax. We note that no significant changes are expected for VAT.
Country by country reporting
Following BEPS action plan 13, a proposal has been filed whereby the Netherlands will implement reporting obligations for multinationals in the Dutch CIT framework.
In the first place, country-by-country reporting is introduced. Dutch resident taxpayers that are part of a multinational with a turnover exceeding EUR 750 million, need to prepare such report. In this report, certain financial information (e.g. statutory profits, income before tax, tax paid, number of employees, etc.) has to be included for each jurisdiction in which the multinational is present. The reporting obligation in principle applies to the ultimate parent company. The country-by-country report has to be provided to the Dutch tax administration within twelve months after the close of the financial year. The reporting may not be used for transfer pricing adjustments.
Secondly, Dutch resident taxpayers with a turnover exceeding EUR 50 million need to prepare a master file and local file. In the master file, information about the transfer pricing methods used and the worldwide allocation of income has to be included. In the local file, the taxpayer has to report information that is relevant for the intragroup pricing in relation with transactions performed by the Dutch taxpayer and its affiliated entities. The master file and local file have to be available at the applicable filing deadline for the corporate income tax return. The master file does not have to be provided to the Dutch tax administration, unless requested.
The new reporting obligations are expected to apply for financial years starting on or after 1 January 2016.
Implementation adjustment Parent-Subsidiary Directive
EU countries need to implement the adjustment to the Parent-Subsidiary Directive (“PS Directive”) per 1 January 2016. In this legislative proposal, the implementation of these adjustments in the Netherlands is included and concerns the participation exemption, anti-abuse regulations for non-Dutch corporate shareholders and the dividend withholding tax position of cooperatives (Coop). Although the scope of the PS Directive is limited to EU situations, the Dutch proposal, which has now been published, extends to worldwide situations.
Under the current legislation, dividends and other payments from qualifying participations can be received tax exempt, regardless of whether the amounts received are tax deductible at the level of the paying entity (a so-called hybrid mismatch). Following the proposal, the participation exemption will not apply to income (dividend and other payments), insofar as this includes remunerations or payments from subsidiaries if such payments can be directly or indirectly deducted from the tax base for profit tax purposes.
The aforementioned also extends to any remuneration for the loss of such income or a write-off in this regard. It will be sufficient if the income is deductible from the taxable base, regardless of whether a restriction to interest deduction (such as thin capitalization or earnings stripping) applies. This may result in double taxation.
As expected, hybrid loan structures will now need to be revised, which will include structures with the use of preference shares. A review of the tax treatment of the income at the level of the subsidiary by the Dutch parent company will be necessary, leading to an increased administrative burden for the taxpayer.
The adjustment to the PS Directive also includes a General Anti-Abuse Rule (“GAAR”). In the Dutch proposal, a GAAR is only included in the regime for non-Dutch corporate shareholders (see below), but it will not apply to the participation exemption.
Anti-abuse regulations for non-Dutch corporate shareholders
Under the current anti-abuse legislation, a non-Dutch company that holds a shareholding of at least 5% in a Dutch company could become liable to 25% Dutch corporate income tax on the income received from this shareholding if certain conditions are met. These conditions are (i) that this shareholding is held with a main purpose or one of the main purposes to avoid dividend withholding tax or income tax at the level of another person or entity (main purpose test), and (ii) that the shareholding is not held in line with the business activities of that shareholder (business test).
Following the proposal, the conditions for the anti-abuse rules to apply are (i) that the main purpose test as described above applies and (ii) that it concerns an artificial construction. A construction will be considered artificial when it is not implemented based on sound business reasons, which reflect economic reality.
An important change as to the current legislation is that the anti-abuse rules may apply to situations in which the shareholding in the Dutch company is held by an (overall) active group through a foreign holding company with insufficient substance.
Considering the wording of the proposal, it is expected that discussions will mainly arise on the qualification of the terms “main purpose” and “artificial”. Hopefully more guidance will be given during the Parliamentary process.
Existing anti-dividend stripping rules and the abuse of law doctrine furthermore remain applicable. Whether the income can in fact also be taxed in the Netherlands will also depend on the applicable tax treaty.
Dividend withholding tax position Coop
Under the current legislation, profit distributions by a Coop are subject to dividend withholding tax if the above main purpose test and business test are met. Following the proposal, these conditions will be adjusted in line with the proposal for anti-abuse regulations for non-Dutch corporate shareholders. Overall the changes should not impact Coop structures, which have been properly implemented. The proposal should also not impact Coop structures with sufficient substance (employees) in the Netherlands.
Step-up for dividend withholding tax purposes in case of cross-border merger or split-off
The proposal includes a step-up for dividend withholding tax purposes in case of a cross-border merger or split-off, in the case that the dissolving entity is a tax resident outside the Netherlands. In order to avoid that a Dutch dividend withholding tax claim arises in such situation on the retained earnings at the time of the merger or split-off, the equity of the acquiring Dutch company will be set at the fair market value of the assets (other than shares in a Dutch subsidiary) that are acquired.
A legislative proposal is already pending that concerns the implementation of the Common Reporting Standards in the Netherlands.
No adjustments to the fiscal unity regime following the European Court of Justice’s ruling “Groupe Steria” (C-386/14) are included in the current proposal. Further news in this regard is expected in the near future.
No adjustments to current interest deduction limitations are proposed, such as general anti - earnings stripping regulations, which are proposed by the OECD in the BEPS action, plan or limited interest deduction on hybrid loans.
REAL ESTATE TRANSFER TAX (RETT)
Ground lease structures
Under the current RETT regime, taxpayers are able to circumvent paying RETT on the transfer of real estate property in a sale and lease back transaction via a so called ground lease structure. In this structure the lessee sells and transfers the property to the lessor at a purchase price that equals the full value of the full ownership. Upon the transfer to the lessor, the lessee reserves the right of ground lease subject to payment of a ground rent that corresponds with the lease installments. In this case, the lease relationship is embodied in the ground lease conditions. Property transfer tax is then levied on the purchase price less the capitalized ground rent. If the capitalized rent equals or exceeds the purchase price, the taxable base is nil.
The Dutch government wants to stop this alternative since they feel that from an economic perspective, the sale and lease back structure and the ground lease structure as used are more or less similar. The tax treatment for RETT purposes should therefore also be the same. To achieve this it is proposed that the capitalized ground rent can no longer be deducted from the taxable base for RETT purposes. This change is expected to be effective as per 1 January 2016.
EMPLOYEE WAGE TAX
Research and Development incentives
The current corporate tax framework provides for a tax incentive whereby taxpayers can claim an additional deduction of expenses related to R&D activities for corporate tax. In addition to the CIT incentive, there is a tax incentive for wage tax purposes where a deduction of R&D labour costs can be claimed.
Based on the proposed legislation, the CIT incentive and the wage tax incentive will be integrated into one new R&D wage tax incentive. The amended R&D wage tax incentive will be available for all R&D costs (R&D labour costs, R&D corporate costs and R&D expenses), whereas the current wage tax incentive only covers R&D labour costs.
The CIT deduction incentive will be abolished. One of the key considerations to eliminate the incentive from the CIT framework is that taxpayers need to generate profits before they can benefit from the deduction. For the wage tax incentive, this is not required.
Under the wage tax incentive, withholding agents are not obligated to fully remit the wage tax withheld on the wages of personnel that carry out R&D activities. The reduction of wage tax to be remitted amounts to 32% with respect to R&D expenses up to EUR 350,000 (for starters: 40%) and 16% for any labour costs above EUR 350,000.
Amendment to the work-related costs scheme (WKR)
Based on the WKR scheme, which is mandatory for all employers as of 1 January 2015, employers may designate allowances or benefits as final levy as long as the allowances and benefits meet the customary test.
Based on the customary test, employers may not include any items in the final wage levy / free space if the value deviates more than 30% from what is normal in similar situations. The amounts exceeding the 30% will be considered taxable wages at the level of the employee.
An adjustment to this customary test is introduced to clarify that in addition to value of the designated allowance or reimbursement, the allowance or benefit itself should be customary for an employer to provide it to its employees. Only allowances and benefits of which it can be said that it is normal / customary to take them into account as a final levy items, will meet the customary test.
Wage tax and income tax rates
The net income of employees will slightly increase next year. The second and third bracket tax rates of 42% will be reduced to 40,15% and the Dutch wage tax credit will increased. Furthermore, the tax bracket for the application of the highest tax rate of 52% will be raised from EUR 57,585 up to EUR 66,421 (gross annual salary). However, the general tax credit for higher incomes will be further reduced.
PERSONAL INCOME TAX
Emigration of substantial interest holders
Under the current legislation, an individual who holds a substantial interest (in Dutch: “aanmerkelijk belang”) in a Dutch company, is upon emigration deemed to have disposed his shares immediately prior to the emigration. The increase in value (capital gains) of the shares is then taxed with 25% individual income tax through a “preserved” tax assessment. This tax assessment will not be payable however, as an extension of payment is granted for a period of ten years. After ten years, the assessment is waived, unless the shares in the Dutch company are disposed within this ten year period or if the Dutch company distributes more than 90% of its profits within the period of ten years.
In practice, this legislation results in the situation that shareholders move from the Netherlands and only distribute the profits of the Dutch company to just below the 90% threshold, in order to avoid the Dutch tax claim of the increase in value of the shares.
In this proposal, two new measures are introduced in order to safeguard the Dutch tax claim. In the first place, the 90% threshold will be abolished as a result of which effectively, any distribution or sale will directly trigger taxation, similar to a Dutch domestic situation. Secondly, the ten year period will be abolished as a result of which distributions and sales after ten years remain subject to Dutch personal income tax.
To prevent that shareholders anticipate on this measure, it will most likely will have a retroactive effect to 15 September 2015 (publication date of the proposal).
Progressive tax system introduced on taxable income from savings and portfolio investments
Currently, taxpayers (individuals) are deemed to generate 4% income (deemed income) on savings and portfolio investments (i.e. investments of less than 5%). The 4% deemed income is subsequently subject to 30% tax. The actual income is not relevant. Effectively, this means that 1.2% income tax is due on the net value of the savings and portfolio investments. A tax-free threshold is applicable. This threshold currently amounts to EUR 21,330.
As of 1 January 2017, it is proposed that the deemed income will no longer be calculated based on a fixed percentage of 4%. Instead, progressive rates will apply to determine the deemed income from savings and portfolio investments. Different rates will apply on savings and portfolio investments. Furthermore, a deemed ratio of savings and portfolio investments will be taken into account. For this ratio, there are three brackets.
As a result, the average taxable deemed income will amount to 2.9% - 5.5%. This deemed income remains subject to 30% tax.
Furthermore, the tax-free threshold will be increased to EUR 25,000.
YOUR TAXAND CONTACTS
For more information, please feel free to contact one of our partners:
Chris van Wijngaarden (Employee Tax)
+31 20 435 6404
Frank Buitenwerf (Corporate & International Tax)
+31 20 435 6499
Frans Duynstee (Private Clients)
+31 20 435 6435
Gertjan Hesselberth (Corporate & International Tax)
+31 20 435 6416
Jimmie van der Zwaan (Corporate & International Tax)
+31 20 435 6422
Marc Sanders (Corporate & International Tax)
+31 20 435 6400
Martijn Jaegers (Indirect Tax)
+31 20 435 6414
Susan Raaijmakers (Real Estate & Corporate Tax)
+31 20 435 6444