Dutch propose sweeping business tax changes
INSIGHT ARTICLE |
On Oct. 10 2017, the incoming government of the Netherlands presented its plans to revise the corporate tax system. The main changes are:
- The corporate income tax rate will decrease from 25 to 21 percent, in three stages: a reduction to 24 percent
in 2019, a reduction to 22.5 percent in 2020 and a reduction to 21 percent in 2021.
- The 15 percent dividend withholding tax abolished by 2020, except in cases of abuse and for dividend payments made to low-tax jurisdictions.
- Introduction of a withholding tax on interest and royalty payments made to low-tax jurisdictions with an aim to discourage the use of “letter box” companies.
- Increase of the effective rate of the innovation box from 5 to 7 percent;
- Introduction of new earnings stripping rules, which will restrict deduction of net interest expenses to 30 percent of EBITDA, following the EU Anti Tax Avoidance Directive, with a EUR 1 million threshold and no ‘group escape’;
- Reduction of the loss carry forward period from nine years to six years;
- The term of the favorable 30 percent-ruling regime for foreign expats that relocate to the Netherlands will be reduced from eight to five years.
Impact on multinational entrepreneurs
Most measures in relation to corporate tax are aimed not to harm the true entrepreneurs with real activities in the Netherlands but will make the Netherlands more attractive for companies to establish their business. The plan specifically indicates that the Netherlands can become the European leading country, socially, economically and digitally.
The new government focuses on foreign companies that really add value, rather than companies that use the Netherlands as a mailbox. Artificial structures with no real substance will be affected by the anticipated rules in relation to the taxation of dividends, interest and/or royalties. How big this impact will be depends on the definition of abuse and low-tax jurisdiction. No additional guidance is included in the plan and therefore taxpayers will need to inspect the actual tax bills once the government releases them.
The tax measures presented still have to be translated into legislation and submitted to the Dutch parliament. No further details are available at this time. The new Government will have a majority of just one in the 150-seat Dutch parliament and so it remains to be seen if all of the proposals are adopted.
You may also be interested in
Dispute with Dutch taxing authority illustrates the need for a proactive approach and adequate preparation for transfer pricing audit
Netherlands expands scope of dividend withholding tax rules for 2018 even while it considers permanent repeal beginning in 2019.
Foreign pension plans can be very costly for US taxpayers and play a key role in tax planning for international assignments
Qualified dividend income planning creates income tax savings for U.S. investors in S corporations, partnerships and LLCs with foreign operations.
From evaluating the target to the right kind of deal to post-deal structure, tax affects international deal success.