Tax Plan 2018

12th of December | Door:  Jasper Gorter

On Budget day, 19 September 2017, the Dutch government presented the 2018 Tax Plan. Alfa has listed the tax measures for you below. With this overview, we focus on internationally operating companies.

Corporate income tax

Foreign substantial interest

Under current law, non-resident entities that own a substantial interest in a Dutch company (i.e. 5% or more) are in principle subject to Dutch corporate income tax as a foreign substantial interest holder with respect to their substantial interest in case (i) the foreign shareholder holds the interest in the Dutch company to mitigate the levy of Dutch dividend withholding tax and/or Dutch personal income tax and (ii) an artificial arrangement is in place. The Bill limits the first test, on the basis of which the test now only focusses on whether Dutch personal income tax is avoided.

Economic reality

Foreign corporate income tax liability in respect of a substantial interest may arise both in the event of an artificial construction and in the event of an artificial transaction. In addition, the sound business reasons reflecting economic reality will be worked out in greater detail. This is in accordance with the new dividend withholding tax anti-abuse provision.

Double taxation relief

The Bill expands an existing anti-abuse rule relating to the calculation of profits of a fiscal unity that has a foreign permanent establishment. Due to the fiscal consolidation provided by the Dutch fiscal unity regime, intercompany transactions between fiscal unity companies are in principle eliminated. Payments of one fiscal unity company to another that are attributable to a foreign permanent establishment of a fiscal unity company can create a mismatch, as such transactions are visible in the permanent establishment jurisdiction.
 
For interest payments an anti-abuse rule countering this possibility is already in force. Based on the Bill, this anti-abuse rule will effectively also apply to other intra -fiscal unity payments such as royalty payments, lease payments and rental payments.

Losses on loans to group companies

To prevent double loss deduction schemes, the deductibility of losses on loans to related parties will be further restricted in specific cases. In general, if a taxpayer incurs a loss on a loan to a related party, such loss will no longer be deductible if it is indirectly related to a loss which arose at the level of a company that is (or was) included in a Dutch fiscal unity with the taxpayer.

Liquidation loss rules

Under the current rule and due to the wording of the law, a liquidation loss could be established too high in situations where a company would no longer take part in a fiscal unity for Dutch corporate income tax purposes. This has now been repaired.

Fair market value

To determine the adjusted acquisition price of a company that is no longer part of the fiscal unity, the fair market value of this company is taken as a basis to calculate the shareholder’s equity of this company if the fair market value is lower than the shareholder’s equity.

Country-by-country reporting

As per 2016, the Netherlands implemented country-by-country reporting. Dutch resident taxpayers part of a multinational with a turnover exceeding EUR 750 million, need to prepare such report. In principle, a country-by-country report should be filed in the jurisdiction of the ultimate parent entity. However, in some cases the jurisdiction of the ultimate parent entity has not implemented country-by-country reporting. As an interim measure, it has been approved – under certain conditions – that if the jurisdiction of the ultimate parent entity allows to voluntarily submit the report, that this is sufficient to be relieved from the Dutch obligation to file the report to the Dutch tax administration.

Dividend withholding tax

Dutch holding cooperatives subject to Dutch dividend withholding tax
 
Profit distributions made by a Dutch cooperative to its members are currently not subject to Dutch dividend withholding tax, unless the structure is considered abusive. The Bill introduces an obligation for so called “holding cooperatives” to withhold Dutch dividend withholding tax at a rate of 15% on profit distributions to qualifying members.

The EU/Netherlands withholding tax exemption expanded to corporate shareholders in tax treaty jurisdictions
 
Dividend distributions made by a Dutch company (such as a BV or NV) are currently typically exempt from Dutch dividend withholding tax if the recipient is a corporate tax resident in the Netherlands or a member state of the European Economic Area (including the European Union), and in some cases where a bilateral tax treaty results in an exemption. For many cases the Bill expands this exemption to corporate shareholders that are resident in a country with which the Netherlands has concluded a tax treaty that contains a dividend income clause. It is important to note that even if the dividend income clause does not provide for a 0% rate, the exemption will nevertheless apply in full based on the mere fact that a tax treaty is in place.

VAT

Adjustment of VAT rate provisions in relation to sea vessels

The definition of “sea vessels” for the purpose of the Dutch VAT zero rate provisions will be adjusted in order to be in line with the EU VAT Directive. Following feedback from the European Commission on the definition applied by the Netherlands, it will now also be a requirement that sea vessels are actually used for navigation on high seas to qualify for the Dutch VAT zero rate provisions.

Wage tax

Abolishment deemed employment for non-executive directors listed company

It is proposed to abolish the deemed employment for non-executive directors of listed companies. This is in line with the legislation previously introduced for supervisory board members in 2017. Consequently, it will not be necessary to withhold, report and remit wage tax for these board members as from 1 January 2018. As from that date these board members will be treated similar to a supervisory board member in a two tier board.

Limitation of tax credit for foreign taxpayers

As of January 1, 2019 the labor tax credit may be taken into account when calculating the wage tax payable by employees who do not live in the Netherlands but in an EU or EEA Member State, Switzerland or on one of the BES islands. Employees who do not live in the abovementioned countries are no longer eligible for this tax credit.

New arrangement for issuing stock options by startups

A new scheme will apply for issuing stock options to employees of startups. This was already included in the Tax Plan 2017 and will become effective as of 1 January 2018. Since startups often do not have enough opportunities to pay more salary, this scheme will provide for more flexibility and support. If a stock option right is granted to an employee, the employee is entitled to wage upon exercising or alienating that right. Insofar the gain for the employee does not exceed EUR 50,000, only 75% of that gain will be taxable (thus exempting 25%). The exemption amounts to a maximum of EUR 12,500. Stock options granted in 2017 may also be part of the new exemption from 1 January 2018.