On 15 September 2020, the Netherlands government presented its planned tax measures for 2021 to the Dutch Parliament. We have outlined the most important proposals below. All proposals described below are intended to enter into force on 1 January 2021, unless stated otherwise.
Corporate income tax rates
Last year, the government announced its intention to reduce the highest corporate income tax rate from 25 to 21.7 per cent in 2021. In light of the current COVID-19 crisis, however, this reduction will not be implemented; the rate will thus stay at 25 per cent. The lower corporate income tax rate (for taxable profits up to EUR 200,000) will (as planned) be lowered from 16.5 to 15 per cent, whilst the threshold for this lower rate will be increased from EUR 200,000 to EUR 245,000 (and to EUR 395,000 in 2022).
In addition, the tax rate for the Dutch innovation box, which lowers the effective tax burden on profits arising from self-developed intangibles, will be increased from 7 to 9 per cent.
Amendment to the anti-base erosion rules
The anti-base erosion rules set out in Article 10a of the Netherlands corporate income tax act provide that the deduction of interest (including FX results and related costs) is denied if (i) the interest is paid on debt attracted from a related party, and (ii) the debt is attracted in connection with certain ‘tainted’ transactions (i.e. profit distributions, capital contributions or acquisitions/expansions of shareholdings).
Currently, Article 10a could also result in a reduction of a taxpayer’s taxable profits, as it effectively eliminates the results on such debt from a taxpayer’s corporate income tax base. This could for example be the case if there are FX gains or where debt carries a negative interest. The amendment provides that if the balance of all ‘tainted’ interest expenses, income and FX movements is positive in a particular year, such positive balance will be taxable under the normal rules; if it is negative, the deduction will still be denied.
Specific measures for banks and insurers
The tax rate for the bank tax will be increased from 0.044 to 0.066 per cent for taxable amounts relating to short-term liabilities, and from 0.022 to 0.033 per cent for taxable amounts relating to long-term liabilities. The increase will be reversed in 2022.
Furthermore, under the current thin capitalization rule, a proportional part of the annual interest expenses of banks and insurers is non-deductible in case the consolidated leverage ratio (for banks) or the equity ratio (for insurers) is less than 8 per cent of the balance sheet total. As from 2021, this percentage will be increased to 9 per cent of the balance sheet total. In addition, when assessing whether the threshold of 9 per cent is met, additional tier-1 capital will no longer be considered as equity.
Loss offset limitation
As of 1 January 2022, losses carried over may be offset only up to 50 per cent of taxable profits if profits exceed a EUR 1,000,000 threshold in a particular year (if the profits in a particular year do not exceed EUR 1,000,000, losses can still be fully used). This applies to both carry back and carry forward losses. All losses that cannot be offset may be carried forward indefinitely (this is currently limited to 6 years).
Exemption from, and increase of the rates of, real estate transfer tax
Purchasers between 18 and 35 of residential property will enjoy a one-off exemption from real estate transfer tax. The current lower rate of 2 per cent for residential property will continue to apply to acquisitions by other age groups and purchasers that have already applied the aforementioned exemption. The rate for non-residential acquisitions and residential acquisitions by persons who will not be using the residential real estate as their main residence (e.g. buy-to-let, institutional investors, but also second homes) will be increased from 6 to 8 per cent.
Further measures to be taken in the future
Tackling informal capital structures
In the Netherlands, the application of the arm’s length principle may lead to both upward and downward profit adjustments. Currently, it is therefore possible that the application of the arm’s length principle could result in a downward adjustment in the Netherlands, without a corresponding upward adjustment elsewhere (the most common example being the so-called informal capital structures). The government intends to introduce a separate legislative proposal by spring 2021 to target such structures. The proposal will effectively amend the application of the arm’s length principle in the Netherlands by providing that downward adjustments based on that principle will be limited in case there is no (or a lower) corresponding adjustment in another jurisdiction.
Payroll tax reduction for investments
The government announced that it will introduce an investment discount for companies investing in their businesses following the COVID-19 crisis (e.g. in new machinery). The investment discount will be granted by providing such companies with a discount on the amount of payroll tax payable. The government did not yet provide any further explanation or details.
Intended capital allowance
It was further announced that the possibility for the introduction of a notional interest deduction on equity will be examined, in order to further balance the tax treatment of debt and equity.
Limitation of dividend withholding tax-offset
As a result of the judgment of the CJEU in the Sofina case, the Netherlands is planning to limit the possibility for resident corporate taxpayers to credit the amount of dividend withholding tax withheld on their portfolio investments from 1 January 2022. The government intends to do so by granting the credit only in case the relevant taxpayer realises a positive result in a particular year, and in that case only up to the amount of corporate income tax due in such year. Excess credits may be carried forward to future years.