Dutch tax plan 2021

On 23 February the (new) Dutch government gave insight in their tax plans for the coming years. The 5 key tax policy priorities for the Dutch government until 2021 are the following:

  1. Countering tax avoidance and tax evasion.
  2. Better tax climate for companies with economic substance.
  3. Lower tax burden on labour, set-off against an increase of the reduced VAT rate.
  4. More focus on green taxes.
  5. Improving the executability and enforceability by the Dutch tax authorities.

Countering tax avoidance and tax evasion

This is the main goal of the Dutch government until 2021 and consists of various elements:

  1. Implementation of ATAD 1 & 2, beyond the minimum European thresholds. This includes the introduction of earning stripping rules in 2019 without a group exception and a safe harbour of only 1 mln and the introduction of CFC rules for companies lacking economic substance based in “black list countries” or in low tax jurisdictions. A public consultation is announced for countering hybrid mismatch structures, including the well-known CV/BV structure.
  2. Introduction of withholding tax on Dividends, Interest and Royalties to low tax and non-cooperative jurisdictions in 2021.
  3. The substance requirements will be tightened. Only companies that pay salaries of EUR 100.000 or more and have an office space for at least 24 months are considered to have economic substance and are therefore not subject to spontaneous exchange of information and CFC rules. 
  4. Through the MLI, the Dutch government aims to change its tax treaties so that the treaty benefits will not be available in case of hybrid mismatches or tax abuse. This includes the introduction of the Principal Purpose Test in Dutch tax treaties. 
  5. Tax rulings are considered as an important tool for the Dutch government to have discussions about the application of tax law upfront. Rulings therefore remain to be available for tax payers to get upfront certainty about the interpretation of Dutch tax law for their specific circumstances. 
  6. Improving transparency through the public disclosure of CbCR and the mandatory disclosure of potentially aggressive tax structures by intermediaries. 

Better tax climate for companies with economic substance

The tax treatment of “real companies” will be made more attractive through the following measures:

  1. Gradual reduction of the CIT rate to 16% for profits up to 200k and 21% on the remainder.
  2. Abolishment of dividend withholding tax per 1 January 2020 except in cases without economic substance (see above).
  3. Abolishing certain existing limitations of interest deductibility to simplify Dutch CIT law following the introduction of earning stripping rules (see above).
  4. Broadening the tax base by shortening the period for loss carry forward from 9 to 6 years and limiting amortization of real estate.
  5. Increase of the tax rate for substantial shareholding by individuals (from 25% to 28.5%).

Earlier in 2018 some other changes to the Dutch CIT were announced, including changes to the Dutch Group tax regime (see: Dutch tax group regime on the rack) and an increase of the tax rate for the Dutch innovation box to 7%.

Lower tax burden on labour, set-off against an increase of the reduced VAT rate.

The wage tax is reduced by the introduction of a “social flat tax regime”, whereby income up to roughly 70k is taxed at 37% and income above that threshold is taxed at 49.5%. The reduction of the highest rate from 52% to just below 50% does however not necessarily reduce the effective rate for Dutch individuals as the various tax rebates will become regressive and most deductions (including mortgage interest) will be capped at the lower rate.

It is also announced that it will be reviewed whether savings and investments of individuals can be taxed based on actual income instead of notional income as it is today.

The reduced VAT rate for “primary goods and services” will be increased from 6% to 9% per 1 January 2019. Furthermore the Dutch government embraces the European initiatives to future proof the VAT rules for the digital world.

Green taxes

The government will further stimulate sustainable behaviour to meet the Paris climate goals. The measures announced in this field include a minimum price for CO2, changes to the taxation of energy, waste, aviation and cars.

Improving the executability and enforceability by the Dutch tax authorities

By reducing complexity the Dutch government aims to make life easier for tax payers and tax authorities. Moreover, a renewed focus on executability and enforceability of (new) tax legislation should result in better quality of input (tax returns) and thus a more efficient administrative process.

Conclusion

In line with international developments, the Dutch government aims to ban tax avoidance and tax evasion by implementing anti avoidance measures as prescribed by ATAD and BEPS. However the Dutch government goes further than other countries and is planning to introduce measures beyond the required minimum standards. That of course is very noble but not necessary smart in a global environment of heavy tax competition with the US tax reform and the Brexit looming.

The Dutch government therefore also improves its tax competiveness by the abolishment of the dividend withholding tax and a reduction of CIT rates. Both are welcome gestures to companies with an international footprint and together with an excellent treaty network, broad participation exemption and an well-established (non-tax) infrastructure, the Netherlands remains to be a great place to do business.

Author: Barend Broen

Barend Broen

Barend Broen

Adviseur
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