On September 15, 2011, Dutch Government released a Tax Bill. The most important proposed amendments in the area of corporate taxation (dividend tax and corporation tax) are summarized below. Although Dutch Parliament may amend the Tax Bill during the course of the legislative process, it is expected that these amendments will take effect as of January 1, 2012. For more detailed information on a particular amendment, please click on the respective title.
Further restriction of interest deduction in respect of acquisition debt
Dutch Government proposes expanding the interest deduction limitation in respect of loans (whether third-party loans or related-party loans) taken up to acquire a (Dutch) target company to situations where the target company (i) is included in a corporation tax consolidation (fiscal unity) with the acquirer, or (ii) enters into a legal (de)merger with the acquirer as a result of which the acquisition loan and the assets of the target company are held by the same entity. Interest deduction is limited to the amount of the profits of the (fiscal unity of the) acquirer excluding profits of the target company. The limitation only applies to the lower of (i) annual interest expenses in excess of
€ 1,000,000 and (ii) annual interest expenses on excess debt (i.e., to the extent that the equity-to-debt ratio exceeds 1:2). A grandfathering applies for leveraged acquisitions that resulted in the inclusion of the Dutch target company in a fiscal unity (or a legal (de)merger) with the acquirer before January 1, 2012.
Elimination of immediate deductibility of non-Dutch permanent establishments losses
Dutch Government proposes changing the method for the avoidance of international double taxation for qualifying non-Dutch permanent establishments (PEs). The proposed measure provides that profits and losses of qualifying PEs are excluded from the Dutch taxable base (object exemption), with the exception of final losses upon permanent wind-up of a PE. Under the current rules, losses of a non-Dutch permanent establishment are included in Dutch taxable income and immediately reduce the Dutch taxable base. According to Parliamentary documents, the introduction of the object exemption does not intend changing the calculation method of the profits allocable to a PE.
Limitation of taxation of non-Dutch-resident entities with a so-called ‘substantial interest’ in a Dutch-resident entity
Dutch Government proposes a limitation of the circumstances under which a non Dutch resident entity is subject to corporation tax in respect of an interest in a Dutch-resident entity. Under the proposal, a non-Dutch-resident entity with a so-called ‘substantial interest’ (as a general rule, 5% or more) in a Dutch-resident entity will not be subject to corporation tax if (i) its substantial interest can be attributed to an enterprise carried on by the non-Dutch-resident entity (the existing rule) or, alternatively, (ii) the substantial interest is not held with the main purpose (or one of the main purposes) to avoid Dutch individual income tax and/or Dutch dividend tax of another person. If the substantial interest is held only to avoid dividend tax (i.e., not to avoid individual income tax), the corporation tax liability is effectively limited to a 15% rate over dividend distributions.
Expansion of research and development facilities
Dutch Government proposes introducing a research and development (R&D) deduction to reduce direct costs of R&D (other than employment costs that relate to R&D, which currently benefit from a (wage) tax incentive). Such R&D deduction will apply in addition to the so called ‘innovation’
Anti-abuse provision to subject certain distributions by cooperatives to dividend tax
Dutch Government proposes introducing an anti-abuse provision targeting distributions made by Dutch cooperatives. The principal rule will remain that distributions by Dutch cooperatives are not subject to dividend tax. However, an exception could be made for structures that Dutch Government considers abusive: structures in which the cooperative directly or indirectly holds shares in a company with the main purpose (or one of the main purposes) to avoid Dutch dividend tax or foreign tax of another person. In the case of such an abusive structure, members in the cooperative whose membership interest cannot be attributed to an enterprise are subject to dividend tax on all distributions to such members. In the case of such an abusive structure, members in the cooperative whose membership interest can be attributed to an enterprise are only subject to dividend tax to the extent necessary to preserve and collect the dividend tax claim on the profits of a Dutch company held by the cooperative which already exist at the time the cooperative acquired the Dutch company.
Extension of dividend tax refunds to qualifying non-EU tax-exempt portfolio investors
Dutch Government proposes extending the existing full refund of dividend tax upon request, as currently applicable to tax exempt Dutch-resident entities and comparable tax exempt entities residing in an EU or (designated)
The proposed amendments do not include the anticipated further restriction of interest deduction in respect of loans used to acquire or capitalize shareholdings qualifying for the participation exemption. Dutch Government has this matter under consideration and measures in this area may be proposed later this year. Furthermore, the proposed amendments do not include the previously anticipated reduction of the general corporation tax rate (currently, 25%).