The Netherlands, as knowledge-based economy, puts a lot of emphasis on the stimulation of innovation and research and development. There are some recent developments that are important for the approximately 23.000 Dutch companies making use of the Dutch tax incentives in relation to innovation.
In order (to remain) to benefit from these tax incentives, we advise clients to take action prior to November 30, next (see below).
Currently the Netherlands has three main tax incentives to stimulate innovation. On the one hand there are tax incentives with respect to the cost-side of R&D, being a wage tax credit for qualifying research and development work (the WBSO) and an additional corporate income tax deduction with respect to costs and capital expenditure attributable to R&D (the RDA). On the other hand there is the tax incentive with respect to the profit-side of R&D, being the innovation box (effective corporate income tax rate of 5% for qualifying profits).
There are some recent important developments with respect to these three Dutch tax incentives:
- Integration of WBSO and RDA into one cost-side tax incentive, the WBSO: as already announced by the Dutch Minister of Economic Affairs (July 2015), the Dutch 2016 Budget proposal (September 2015) includes amendments to integrate the RDA into the WBSO as of January 1, 2016. If approved by parliament, the RDA will for the coming years no longer result in an additional deduction for Dutch corporate income tax, but in an additional wage tax credit. The reasoning for the integration is to make the cost-side incentives more efficient. This is to facilitate ften innovative (start-up) companies that often generate no or little profit in the first years, which results in such companies effectively not benefitting from the additional reduction in the corporate income tax in that respective year (as there is no or limited taxable base), and potentially the additional deduction is never effectuated.
- Modified Nexus Approach: On October 5, 2015, the OECD issued its final reports with respect to the Base Erosion and Profit Shifting action plan (BEPS). Action 5 discusses a.o. the modified nexus approach with respect to preferential tax regimes, such as IP regimes. In short, the modified nexus approach only allows a taxpayer to benefit from a preferential IP regime to the extent that the taxpayer itself incurred qualifying research and development expenditures that gave rise to the IP income, opposed to the legal/economical ownership of the IP (in order to realign taxation of profits with the substantial activities that generate them). BEPS Action 5 states that qualifying IP assets should be
- patents (defined broadly),
- copyright software and
- competent authority certified IP (such as a WBSO-certificate).
Whereas the latter certification can only be used as entry ticket to an IP regime for companies with (a) no more than EUR 50 million global group-wide turnover and (b) EUR 7.5 million or less per year in gross revenues from all IP assets. The latter is especially of relevance with respect to the Dutch innovation box as it is currently possible to qualify for the Dutch innovation box with a WBSO-certificate independent of turnover and gross revenues.
Earlier this year the OECD and G20 countries agreed on bringing their patent boxes (like the Dutch innovation box) in line with the modified nexus approach no later than June 30, 2016, whereas grandfathering with respect to existing regimes (for instance in case advance certainty is obtained) is allowed up to June 30, 2021.
Action to be taken
Innovative companies should, in order to make sure that their tax position is or remains to be optimal, determine whether planning is needed with respect to these recent developments, e.g.:
- Check whether the entity making the costs and capital expenditure attributable to R&D has sufficient basis to benefit from the wage tax credit, otherwise alternative structuring should be explored and in place prior to November 30, 2015. WBSO-requests for application as of January 1, 2016, should be filed ultimately November 30, 2015.
- Determine whether it would be beneficial to obtain advance certainty prior to June 30, 2016, with respect to the application of the Dutch innovation box and as such be able to still apply the current regime up to ultimately June 30, 2016.