Contents 1. Corporate income tax 1.1 Flag requirement tonnage tax regime 1.2 Investigation by the Dutch tax authorities into the application of the temporary scheme of accelerated and random depreciation 1.3 Case law 2. Tax treaties 2.1 Germany – Netherlands Income Tax Treaty 3. Wage tax / Social security / Labour law 3.1 Declaration of Independent Contractor Status (VAR) to be abolished 3.2 Changes in R&D tax incentives 3.3 Seafarer’s wage tax relief (‘afdrachtvermindering zeevaart’) - Developments 3.4 Kik judgment - Social security position of international seafarers 3.5 Social security position of Dutch Rhine boatmen employed by a Luxembourg entity performing their activities aboard a vessel with a Rhine navigation certificate 3.6 More EU-directives applicable to seafarers 3.7 Working beyond the state pension age 4. Value added tax 5. EU / State Aid February 2016 Netherlands tax update for the shipping industry 2 1. Corporate income tax 1.1 Flag requirement tonnage tax regime No extension of the general exception to the EU/EEA flag requirement in 2016 One of the conditions for application of the Dutch tonnage tax regime to a vessel that is owned, co-owned or held in bareboat charter, is that the vessel flies an EU/EEA flag. A general exception to this flag requirement applies if by ministerial regulation it has been determined that the percentage of net tonnage of self-owned vessels that qualify for the tonnage tax regime and that fly an EU/EEA flag with respect to the total net tonnage of vessels qualifying for the tonnage tax regime in a certain period has not decreased compared to the previous period1 . The general exception that applied in 2015 has not been extended to the year 2016. This means that vessels added to the fleet during this financial year have to fly an EU/EEA flag in order to fall within the scope of the tonnage tax regime unless the taxpayer can invoke one of the other two exceptions to the EU/EEA flag requirement (i.e. the ‘non-decrease test’ or the ‘60% test’). For vessels that do not fly an EU/EEA flag and that have been added to the fleet during a year in which the general exception applied, the general exception still applies. Since the introduction of the flag requirement in 2006, the general exception to the flag requirement applied for the years 2006, 2007, 2008, 2012, 2014 and 2015. For more information regarding the Dutch tonnage tax regime and the EU/EEA flag requirement, please refer to our Ship Finance in the Netherlands booklet. You can download or order a copy here. 1.2 Investigation by the Dutch tax authorities into the application of the temporary scheme of accelerated and random depreciation The Dutch tax authorities have concluded their investigation into the application of the temporary scheme of accelerated and random depreciation (“ARD”), which applied to investments made between 1 January 2009 and 31 December 2011 and between 1 July 2013 and 31 December 2013. The scheme provided for the possibility to accelerate the depreciation of investments and to randomly depreciate the investment at the moment the investor entered into the commitment. The scheme was also frequently used in fund structures in which investors (both individuals and corporates) participated. The investigation was specifically aimed at combating improper use of the ARD by such investors in seagoing vessels. The Dutch tax authorities mainly argued that in some cases the investors did not run economic risk with respect to the investment in the seagoing vessel. Loyens & Loeff is currently involved in compromise negotiations between the tax authorities and taxpayers that were subject to the investigation on a case-to-case basis. In general, we expect a number of cases to be brought before the Dutch courts. 1 Please note that the exceptions do not apply to dredgers and tugs. 3 1.3 Case law Court of Appeal Amsterdam 12 March 2015 / conversion of a closed-end mutual fund into a private limited company is possible without tax consequences as the participant is considered an entrepreneur This court case concerned an individual who owned a 12.45% participation in a closed-end mutual fund without legal personality (‘fonds voor gemene rekening’), that was expected to operate a vessel in the future. The taxpayer wanted to convert his participation into a Dutch private limited company and requested the tax authorities to confirm that he could invoke a roll-over facility as a result of which the conversion would have no immediate tax consequences. The tax inspector declined this request. The District Court ruled that the taxpayer is not an entrepreneur as referred to in Article 3.4 of the Dutch Income Tax Act 2001 as the taxpayer is not committed to the agreements concluded by the enterprise or, in as far as he is, his liability is limited such that the business is not considered to be carried on at the risk and expense of the taxpayer. Therefore, in the view of the District Court, the tax inspector was correct in his assessment that the facility cannot be applied. The Court of Appeal, however, subsequently ruled that the taxpayer is an entrepreneur as referred to in article 3.4 of the Dutch Income tax act 2001 as the participants are legally and economically joint owners of the assets of the enterprise. This is especially true for the economic ownership of the vessel. Moreover, the participant is not required to be committed to all agreements concluded by the enterprise. The fund resembles a general partnership and should be qualified as such. The participants cannot be compared to a pure limited partner. As such, in the view of the Court of Appeal, the facility for a tax neutral conversion can be invoked. Court of Appeal Arnhem-Leeuwarden 17 March 2015 / Earlier application of random depreciation is irrelevant for a tonnage tax request This court case concerned a corporate taxpayer who invested in seagoing vessels in 2009. In its 2009 corporate income tax return, the taxpayer applied the ARD to these investments. Furthermore, several other expenses in respect of one of the vessels were deducted. The vessels were put into operation in March 2010. On 27 December 2010 the taxpayer filed a request for the application of the Dutch tonnage tax regime to the vessels as from March 2010. This request was turned down by the tax authorities as, in their view, the application of the ARD and the deduction of the other expenses in 2009 entail that the taxpayer already derived shipping profits in 2009. Therefore, according to the tax authorities, the taxpayer should have opted for the application of the tonnage tax regime in 2009. The District Court did not agree with the tax authorities and ruled that the random depreciation is not considered an expense directly related to the actual exploitation of a vessel and is, therefore, not considered (negative) shipping income. Subsequently, the Court of Appeal ruled that the request had been filed in time as the taxpayer only fulfilled all requirements for applying the tonnage tax regime as of 2 March 2010. With regard to the taxpayer’s request to apply the Dutch tonnage tax regime as from the date of actual operation of the vessel, both the District Court as the Court of Appeal ruled that the Dutch tonnage tax regime should be applied as from the beginning of the financial year in which the taxpayer operated the vessel for the first time (i.e. in this case 1 January 2010). Given the clear legislative text which states that the tonnage tax regime applies as of the beginning of the year in which the tonnage tax request is made, this seems to be a correct decision. 4 On 22 October 2015 the Advocate-General issued his opinion in the case described above. He states that, in his opinion, the Court of Appeal has failed to take into consideration that the successive application of the ARD and the tonnage tax regime may constitute non-notified state aid. District Court North Holland 1 July 2015 / No right to application of random depreciation scheme as no fiscal unity has been concluded This court case concerned a fiscal unity that set up a construction with seagoing vessels in order to benefit from the ARD. In this respect a company within a fiscal unity established two entities, M BV and N BV, which participated in two limited partnerships, each with the purpose of building a vessel. M BV and N BV were also included in the fiscal unity. Subsequently, two participation agreements were concluded, which contained a put option on the shares in M BV and N BV. The District Court ruled that M BV and N BV could not be included in the fiscal unity as the parent company of the fiscal unity did not avail itself of the (full) economic ownership of the shares in both M BV and N BV. The District Court found that, considering the way of ascertaining the exercise price at the moment of exercising the option, the parent company did not (fully) share in any increase or decrease in value of the shares in M BV and N BV. As such, the parent company of the fiscal unity could not apply the ARD in respect of the investments in the limited partnerships. We understand that the taxpayer has filed an appeal against this decision. Court of Appeal Arnhem-Leeuwarden 8 September 2015 / Tonnage tax regime not applicable to sales provisions received after the sale of a vessel This court case concerned a taxpayer who acted as a limited partner in a limited partnership engaged in the operation of a vessel. With the aid of the taxpayer, the vessel was sold to a third party. The taxpayer received a sales provision for his brokerage activities. Normally the taxpayer did not perform such activities. The taxpayer and the other partners in the limited partnership agreed to not let the sales provision accrue to the limited partnership but directly to the limited partner. In its corporate income tax return, the limited partner took the position that the sales provision falls under the scope of the tonnage tax regime. The District Court ruled that it is likely that the taxpayer performed its activities in respect of the sale of the vessel in the context of its interest in the sale of the vessel as a limited partner of the limited partnership. On the basis of the text of the Dutch tonnage tax provision and the parliamentary history it can be concluded , in their view, that the sales activities of the taxpayer were directly related to the operation of the vessel and that the sales provision therefore constitutes tonnage tax income. The Court of Appeal ruled, however, that the taxpayer received the commission in its own favour and not in its capacity as limited partner and that therefore the tonnage tax regime does not apply. The Court of Appeal found that the limited partnership was not at all involved in the invoicing and payment of the sales provision. 5 District Court The Hague 8 December 2015 / Participant in shipping fund can apply random depreciation scheme to its participation as owing the purchase price to the seller of the vessel does not mean that the purchase price of the vessel has not been paid This court case concerned an individual participating in a shipping fund. In 2010 this fund acquired the beneficial ownership of a vessel. The fund borrowed part of the purchase price of this vessel from the seller of the vessel. Following the transfer of the borrowed amount to the bank account of the fund, the borrowed amount was immediately transferred back to the bank account of the seller. The tax authorities took the position that the financing agreement between the fund and the seller of the vessel obstructs the possibility for the participant in the fund to randomly depreciate its participation in the fund as, in their view, the fund did not pay for the vessel yet. The District Court ruled, however, that the fact that the fund owes part of the purchase price to the seller of the vessel does not entail that the purchase price for the vessel has not been paid. In this respect, the District Court considered that payment of the purchase price does not require that the purchase price actually leaves the enterprise. Moreover, according to the District Court, it is irrelevant that the seller of the vessel is also the borrower of part of the purchase price. The participant in the fund can, therefore, randomly depreciate its participation in the fund. 2. Tax treaties 2.1 Germany – Netherlands Income Tax Treaty In April 2012 the Netherlands concluded a new tax treaty with Germany. This treaty became effective as of 1 January 2016. The previous Germany – Netherlands tax treaty allocated the income from employment exercised aboard a vessel to the state in which the place of management of the enterprise is situated. The new treaty allocates this income to the state of residence of the seafarer. Under the pending protocol, however, the income from employment exercised aboard a vessel will again be taxable in the state in which the place of management of the enterprise is situated. This is in accordance with the allocation of the income from employment exercised aboard a vessel in the OECD Model Convention. Please note that the protocol has not yet been ratified by the Netherlands and Germany. It is expected to enter into force as of 1 January 2017. Until then taxpayers may want to invoke the grandfathering clause for invoking the previous treaty for another year in respect of their income from employment exercised aboard a vessel. 3. Wage tax / Social security / Labour law 3.1 Declaration of Independent Contractor Status (VAR) to be abolished The Declaration of Independent Contractor Status (‘VAR-verklaring’), (“VAR”), which provides clarity on the fiscal qualification of the relationship with independent contractors will be abolished as of 1 May 2016. The VAR will be replaced by a (voluntary) approval procedure. Companies can submit agreements to the tax authorities to obtain approval that the relationship between parties does not qualify as an employment relationship and consequently no wage tax withholding obligations and payment of social insurance contributions apply. Model agreement texts are being published on the website of the tax authorities to provide insight into the do’s and don’ts when hiring an independent contractor. 6 Advance approval on the agreement will, however, only prevent the tax authorities from imposing additional tax assessments if the way of working in practice is in line with the agreement. The period as of 1 May 2016 will serve as an implementation period in which independent contractors and principals are given time to adjust their procedure to the new situation. In this implementation period, which will run until 1 May 2017, the tax authorities will not enforce but conduct supervision and issue warnings, provided that parties actively reconsider the existing work relations. We further refer to our Flash of 2 February 2016. 3.2 Changes in R&D tax incentives As of 1 January 2016, the tax incentives for R&D costs/expenses are integrated in the existing incentive for R&D wages. In addition, the current rates and bands are slightly amended. The CIT regime for R&D profits (i.e. the innovation box) has remained in place. However, in view of the OECD BEPS project (modified nexus approach), amendments to the existing CIT regime for R&D profits are expected. For more information regarding the changes in the R&D tax incentives we further refer to our Year End Tax Bulletin 2015. 3.3 Seafarer’s wage tax relief (‘afdrachtvermindering zeevaart’) - Developments For seafarers working aboard a vessel flying the Dutch flag and whose employment income is subject to Dutch wage withholding tax and/or Dutch national insurance contributions, the employer is entitled to tax relief in the form of a reduction on the amount of wage tax and national insurance contributions withheld and to be paid to the tax authorities. This wage tax relief for the employer amounts to 40% of the seafarer’s qualifying remuneration if the seafarer is resident of the Netherlands or the EU/EEA. The wage tax relief amounts to 10% of the qualifying remuneration if he is not a resident of the Netherlands or the EU/EEA but is subject to wage withholding tax and/or national insurance contributions in the Netherlands. In order to be entitled to claim the relief, strict conditions must be fulfilled. Our current experience is that the tax authorities are closely reviewing the application of the regulation, especially in offshore shipping situations, since not all types of activities qualify for such tax relief. The following activities in principle do qualify: • transport of goods or persons in international traffic at sea; • transport of goods or persons at sea for the benefit of the exploration or exploitation of natural resources at sea; • tug and salvage activities to vessels; and • dredging activities. Note that these activities do not entirely correspond with the categories of activities that qualify for the Dutch tonnage tax regime. For more information regarding the seafarer’s wage tax relief, please refer to our Ship Finance in the Netherlands booklet. You can download or order a copy here. 7 3.4 Kik judgment - Social security position of international seafarers In March 2015 the European Court of Justice (“ECJ”) gave its judgment with respect to some preliminary questions submitted by the Dutch Supreme Court regarding the social security position of a Dutch seafarer. From June to August 2004, the seafarer, a resident of the Netherlands, was employed by an entity established in Switzerland. He performed his employment activities on a pipe-laying vessel, which flew a Panamanian flag. The vessel carried out work in international waters and above the continental shelfs of EU Member States and third countries. The ECJ ruled that the seafarer is covered by European Coordination Regulation No 1408/71 as he has Dutch nationality, he was insured under a Dutch social security scheme for the period in question and is employed by an employer that is established in a country that can be considered equivalent to an EU Member State. Furthermore, the legislation of the employee’s state of residence is subordinate and is only applied when that legislation also has a link with the employment relationship. As such, the legislation of the state where the employer is established applies if the employee does not carry out work in his state of residence. If, however, the legislation of the state where the employer is established does not provide for an employee’s obligatory affiliation with any social security scheme, the legislation of the employee’s state of residence will then apply. As a result of the ruling the Court, which submitted the preliminary questions, should assess the nature of the taxpayer’s insurance obligation in Switzerland. In practice this ruling gives rise to two new questions. The first question is what happens to the rights accrued in the Netherlands if, later on, it becomes clear that the employee should have been compulsorily insured in the state where the employer is established. Another question that arises is whether this ruling also has significance for the designation rules of Regulation No 883/2004 (which took effect on 1 May 2010). The question here is whether or not the European legislature provided for a solution to this issue by assuming, in that Regulation, the application of the legislation of the state of residence if none of the other designation rules apply (Article 11(3)(e)). 3.5 Social security position of Dutch Rhine boatmen employed by a Luxembourg entity performing their activities aboard a vessel with a Rhine navigation certificate Dozens of cases have been brought to court in respect of the question in which state Dutch Rhine boatmen, employed by entities established in Luxembourg and performing their activities aboard a vessel that is operated in the Netherlands and is in the possession of a Rhine navigation certificate, are obliged to pay social insurance contributions. As the social insurance contributions in Luxembourg are lower than in the Netherlands, the taxpayers argued in these cases that Luxembourg should be obliged to withhold. In these cases the Dutch tax inspector did not refrain, however, from withholding social security contributions. In the court cases the position of the tax inspector has on each occasion been confirmed. Due to the lack of substance of the Luxembourg employment company the courts ruled that the state of residence of the operator of the vessel is the state in which social insurance contributions should be paid (i.e. in this case the Netherlands). In view of these court cases, we advise closely monitoring the social security position of Dutch Rhine boatmen employed by Luxembourg entities. 8 3.6 More EU-directives applicable to seafarers On 6 October 2015 the EU adopted Directive 2015/1796 which takes away or limits the possibilities for EU Member States to exclude seafarers from the scope of the employment related directives on (i) the protection of employees in the event of the insolvency of their employer, (ii) the establishment of a European Works Council, (iii) a general framework for informing and consulting employees, (iv) to the safeguarding of employees’ rights in the event of transfers of undertakings and (v) collective redundancies. The new directive has to be implemented by the EU Member States ultimately by 10 October 2017 and will require certain amendments of Dutch law, most notably to ensure that the crew of seagoing vessels falls under the scope of the Dutch rules on transfer of undertaking. 3.7 Working beyond the state pension age Employing or continuing the employment of an employee beyond the Dutch state pension age (‘AOW-gerechtigde leeftijd’) has become more attractive since 1 January 2016. The requirement to continue the employment and salary during illness of a state pension eligible employee is limited to a period of 13 weeks (instead of 104 weeks), whereas the possibilities to conclude fixed term contracts have been expanded. Deviating arrangements for seafarers, such as the statutory requirement to continue the seafarer’s full salary during illness as long as the seafarer is on board of a vessel or the requirements pursuant to the collective bargaining agreement for the Dutch Marchant Navy (‘CAO Handelsvaart’) shall however prevail. 4. Value added tax Application of VAT zero-rate on the supply of goods for fuelling and provisioning of seagoing vessels to intermediaries acting in their own name is subject to strict conditions In September 2015 the ECJ ruled in the Fast Bunkering Klaipéda UAB case where goods for fuelling and provisioning of vessels were supplied to seagoing vessels via intermediaries. Pursuant to European legislation, an exemption applies to the supply of goods for the fuelling and provisioning of seagoing vessels. This exemption, with a right to deduct input VAT, has been transposed into Dutch legislation by means of a zero rate, which applies to the supply of fuel, provisions, vessel supplies and goods used for resale to passengers of the vessels. In the Fast Bunkering Klaipéda UAB case the ECJ ruled that in principle, the zero rate is not applicable to the supply of goods for the fuelling and provisioning of seagoing vessels to an intermediary acting in its own name. It is irrelevant that the ultimate use is known and duly established and evidence hereof is submitted to the tax authorities at the time the goods were supplied to the intermediary. The zero-rate should, however, be applicable to the sale of the goods to intermediaries acting in their own name if the supplier directly delivers the goods to the operator of the seagoing vessel and the (legal) ownership to those goods is transferred to the intermediary, at the earliest, at the same time as the right to dispose of the goods is transferred to the operator of the vessel. Unfortunately, the scope of the Fast Bunkering Klaipéda UAB case is not fully clear. In our view, the ruling should imply that if the relevant conditions are met the zero-rate should be applicable to the sale of the goods by the supplier to the intermediary, as well as to the resale by the intermediary to the operator of the vessel. This interpretation would be in accordance with Dutch practice. 9 5. EU / State Aid In this section a number of EU developments that are relevant for the maritime sector are discussed. We note that European tonnage tax regimes in principle qualify as measures that constitute state aid within the meaning of Article 107 of the Treaty on the Functioning of the European Union. However, these measures are compatible with the internal market in case the regimes are approved by the European Commission (“Commission” or “EC”) on the basis of the Guidelines on State Aid to Maritime Transport (“Guidelines”). Extension of Italian tonnage tax regime The Commission has assessed the compatibility of the prolonged Italian tonnage tax regime with the internal market and has concluded that this regime is in line with the Guidelines. In its decision the EC specifically approved that carriage and installation of offshore facilities is an eligible activity under the present aid scheme in accordance with the Guidelines. Moreover, the Commission considered that ‘rescue at sea and marine assistance on the high seas’ is not considered maritime transport. As such, these activities are not eligible for direct application of the Guidelines, however, the Commission stipulated that the Guidelines can be applied by analogy to vessels that do not perform maritime transport in case the market where these vessels operate is open to international competition and there is a high risk of de-flagging and relocation. This is the case if (i) vessels require qualified seafarers comparable to those working on board traditional maritime transport vessels, (ii) vessels are obliged to undergo similar technical and safety controls as vessels dedicated to maritime transport and (iii) there is a risk of relocation of on-shore activities and re-flagging vessels outside the EU. EC invites Greece to better target its tonnage tax regime and related support measures in the maritime sector In 2012 the Commission opened an aid procedure concerning the Greek tonnage tax regime and related support measures as the EC has concerns that the Greek tonnage tax regime is not well targeted since certain Greek provisions allow shareholders of shipping companies and maritime intermediaries which do not provide maritime transport services to benefit from favourable tax treatment that should be reserved for maritime transport providers. In December 2015, the Commission asked Greece to exclude fishing vessels, port tugboats, as well as yachts rented out to tourists without a crew but also shareholders of shipping companies and maritime intermediaries which do not provide maritime transport services from the preferential regime. Greece and the EC will now jointly explore how to adjust the Greek tonnage tax regime to end distortions of competition within the EU. In February 2016, Greece has to inform the Commission whether it agrees to the proposed measures. If Greece accepts these measures, the Commission will confirm this in a separate State aid decision. In case no agreement is reached, the Commission may open a formal state aid investigation. 10 France commits to ensure that French tonnage tax payers flag at least 25% of their tonnage in the EEA In 2013 the Commission opened an in-depth investigation to examine whether removing the specific flagging rules for time-chartered vessels by France is in line with EU state aid rules. The Guidelines do not impose specific limitations on time charterers. The Commission, however, has always required in its case practice that time charterers benefitting from tonnage tax contribute to the Guideline’s objective of the promoting EU/EEA flagging of vessels. The Commission came to the conclusion that so far no tonnage tax beneficiary in France has had more than 75% of its fleet composed of timechartered vessels flagged outside the EU/EEA. The removal of the specific flagging requirements, therefore, has not yet had any effect in practice but there is no guarantee that this will remain the case in the future. To address the Commission’s concerns, France has now committed to ensure that French tonnage tax payers flag at least 25% of their tonnage in the EU/EEA. EC requires the Netherlands to abolish CIT exemption for its seaports In July 2014 the Commission opened an in-depth investigation in respect of Dutch provisions exempting port operators from corporate tax as the Commission was concerned that these provisions may give Dutch ports an undue advantage over their competitors. In the course of this investigation the Netherlands adopted a law making public undertakings subject to corporate tax as of 1 January 2016. This law, however, contained a tax exemption for six publicly-owned Dutch seaports. The Commission considered that the Dutch legislation in principle addressed its state aid concerns but concluded that the exemption for six publicly-owned Dutch seaports has to be abolished as of 1 January 2017 as well, in order to remove the distortion of competition. In March 2016, the Netherlands has to inform the EC whether it agrees to the proposed measures. The Commission has also proposed measures to Belgium and France to adapt their legislation in order to ensure that ports pay corporate tax on their economic activities in the same way as other companies in Belgium and France, respectively. In March 2016, Belgium and France have to inform the EC whether they agree to the proposed measures. In case no agreement is reached, the EC may open an in-depth investigation. General Court annuls the EC’s decision finding that the ‘Spanish tax lease system’ was illegal state aid By decision of 17 July 2013, the Commission declared that the aid resulting from the Spanish tax lease system was partially incompatible with the internal market. In compliance with the principle of legal certainty, the Commission ordered the recovery of the aid from investors without their being able to transfer the burden of recovery to other persons. The General Court of the European Union, however, found that the advantage to investors was not selective and the statement of reasons concerning the likelihood of a distortion of competition and an effect on trade was not sufficient. www.loyensloeff.com Although this publication has been compiled with great care, Loyens & Loeff N.V. and all other entities, partnerships, persons and practices trading under the name ‘Loyens & Loeff’, cannot accept any liability for the consequences of making use of this issue without their cooperation. The information provided is intended as general information and cannot be regarded as advice. Disclaimer Should you have any questions, please feel free to contact one of the following members of our shipping team: Ton Stevens firstname.lastname@example.org Marcel Buur email@example.com Clim Verkoijen firstname.lastname@example.org Taco Mooren email@example.com Chantal van der Linden firstname.lastname@example.org Wies Verstraaten email@example.com Patrick Vettenburg firstname.lastname@example.org You can of course also approach your own contact person within Loyens & Loeff N.V.