The Dutch Tax Plan for 2022 includes a number of legislative proposals. There are also several other legislative proposals pending or that have already been adopted. Most of the legislative proposals have a scheduled effective date of January 1, 2022. Please find below an overview of the most important and significant changes.
Corporate income tax
The current tax rate amounts to 15 percent for profits up to €245,000 and 25 percent for profits exceeding €245,000. It is proposed to extend the lowest bracket from €245,000 to €395,000 and to increase the highest tax rate from 25 percent to 25.8 percent as of January 1, 2022.
Tax loss carry forward
Currently, tax losses can be carried forward for a limited period of six years and carried back for one year. As of January 1, 2022, tax losses can be carried forward indefinitely. However, the use of the loss in a year will be limited. The taxable profit up to €1 million can be fully offset against prior year tax losses, the taxable profit in excess thereof can only be reduced up to 50 percent.
Earning stripping rule
On basis of the so-called earnings stripping rule, the net borrowing costs (interest expenses minus the lower interest income) are only deductible up to 30 percent of the earnings before interest, taxation, depreciation and amortization. It is proposed to reduce the deductible interest under the earnings stripping rule with a reduction from 30 percent to 20 percent as of 1 January 2022.
Transfer pricing mismatches
If related entities agree terms and conditions that are not at arm’s length, the price can be adjusted upwards or downwards to an arm’s length price. If the Dutch entity can demonstrate, for example, that the arm’s length interest rate should have been €100 instead of the agreed €50, it can currently deduct €100. If the related entity in the other state does not make an equal adjustment, a deduction without inclusion arises, which is considered undesirable.
It is proposed to deny the downward price adjustments (i.e. pricing adjustments that lead to higher costs or lower income in the Netherlands) at the level of the Dutch entity or Dutch branch as of January 1, 2022 if there is no corresponding upward adjustment in the other state. However, the downward adjustment would be accepted if the Dutch entity or branch demonstrates that:
- the non-resident related party is considered tax transparent according to its resident jurisdiction, while the non-resident related party is considered non-transparent under Dutch tax law; and
- all participants in the non-resident entity are considered the beneficial owner of the income of the underlying transaction according to their resident state and a corresponding adjustment is taken into account, which is taxed accordingly.
ATAD2 - Dutch reverse hybrid entities
A Dutch reverse hybrid entity is an entity that is considered tax transparent in the Netherlands and non-transparent according to the tax laws of the resident jurisdictions of its foreign entities. According to the legislative proposal, a Dutch entity, which is considered transparent according to Dutch tax law, will become subject to Dutch corporate income tax if at least 50 percent of the voting rights, capital interest or profit rights are owned by participants resident in a jurisdiction that qualifies the reversed hybrid as non-transparent. This also applies for the Dutch Dividend Withholding Tax Act (Wet op de dividendbelasting 1965) and the Dutch Source Tax Act 2021 (Wet bronbelasting 2021), as a result of which the Dutch reverse hybrid entity will become a withholding agent for these taxes.
However, no Dutch taxation at the level of the Dutch entity should arise for that part of the reverse entity’s profit that is attributable to a participant in a jurisdiction that also qualifies the Dutch entity as tax transparent (so no mismatch).
Credit of dividend withholding tax for Dutch resident companies
On November 22, 2018, the European Court of Justice ruled in the French Sofina case (C-575/17) that the French tax system, levying French dividend withholding from loss-making foreign companies, while no French dividend withholding tax is levied (or levied at a later time) from French loss-making companies, is contrary to EU law, more specifically contrary to the freedom of capital movements.
Under Dutch tax law, Dutch companies may credit the Dutch dividend withholding tax against the corporate income tax. If no incorporate income tax is due, the credit may result in a refund of the dividend tax. Foreign companies are not able to benefit from this system if they are in a loss position, as they are not subject to Dutch corporate income tax.
The Dutch government is of the opinion that the Dutch system described above may also be contrary to EU Law. Therefore, it is proposed to limit the application of the Dutch dividend withholding tax credit as of January 1, 2022 to the amount of Dutch corporate income tax due. The surplus can be carried forward indefinitely. The amendment adversely hit Dutch tax loss-making companies investing in Dutch shareholdings of less than
5 percent or, if the exemption cannot be applied, to 5 percent or more shareholdings.
Dutch source taxes
Source tax on interest and royalties
As of January 1, 2021, a source tax was introduced on interest and royalty payments to related parties in low-tax or non-cooperative jurisdictions. The tax rate of the Dutch source tax is equal to the highest Dutch corporate income tax rate, which is currently 25 percent. From next year this rate will be 25.8 percent.
This source tax may also apply to payments made via a Dutch permanent establishment (PE). The current definition of a PE does not include Dutch real estate. It is therefore proposed to amend the PE definition as of January 1, 2022 to extend the taxation rights.
In addition, a second amendment clarifies that foreign hybrid entities will not be subject to the Dutch source tax if it can be demonstrated that neither the participants themselves nor via a collaborating group of participants own a controlling interest in the foreign hybrid entity. It is proposed that this amendment will have retroactive effect from January 1, 2021.
Source tax on dividends
The legislative proposal to introduce a source tax on profit distributions to related parties resident in low-tax or non-cooperative jurisdictions has been adopted and enters into effect from January 1, 2024. The tax rate is equal to the highest Dutch corporate income tax rate, which is currently 25 percent.
This source tax will be levied in addition to the already existing Dutch dividend withholding tax (current rate 15 percent). Other than the dividend tax, which must be remitted within 30 days following the profit distribution, the source tax will be levied annually. The 15 percent dividend tax is creditable against the source tax to avoid double taxation.
The Netherlands may not be able to effectuate its source taxation in case of a tax treaty. The Netherlands has concluded bilateral tax treaties with Bahrain, Barbados, Panama and the United Arab Emirates (UAE), which are considered low-tax or non-cooperative jurisdictions. However, these tax treaties are brought under the Multilateral Instrument (MLI) and therefore contain or will contain a principal purpose test, which is an anti-abuse provision. The Netherlands will be able to effectuate its source taxation in cases of abuse. The MLI already changed the bilateral tax treaty between the Netherlands and the UAE and will change the tax treaty with Panama as of January 1, 2022. It is yet unknown when the MLI will enter into effect with respect to the bilateral tax treaties between the Netherlands and Bahrain/Barbados.
Dividend tax on undistributed profits and reserves
On July 10, 2021, a legislative proposal was introduced regarding a 15 percent tax on undistributed profits and reserves for Dutch resident companies in cases of cross-border migrations/mergers/split-offs/share-for-share mergers from the Netherlands to:
- a jurisdiction without a dividend tax comparable to the Dutch dividend tax; or
- a jurisdiction that provides for a step-up that leaves untaxed the profits and reserves that accrued in the Netherlands.
If this is the case, the Dutch company is deemed to have distributed all its profits, realized reserves and unrealized reserves to its shareholders.
The legislative proposal stated that the amendment should have a retroactive effect to noon, July 2020. That said, because of the number of amendments and the fact that it is unclear when, exactly, the legislative proposal will be adopted, it was decided to remove the retroactive effect from the proposal. However, the retroactive effect was reintroduced. The legislative proposal now states that the amendment will have retroactive effect to 3 p.m., November 15, 2021.
Personal income tax
For a Dutch tax resident individual, portfolio assets (i.e. box 3 assets) are not taxed on actual income but on notional income. A notional yield of 1.898% applies to the net box 3 assets up to €50,001, 4.501% for net box 3 assets between €50,001 and €950,001 and 5.69% for net box 3 assets exceeding €950,001. For savings, these yields are in general not feasible. There are currently several court cases pending challenging these notional yields.
The guiding principle behind the notional income was to approach the average feasible yield on the net box 3 assets over a longer period without having to take significant risks. The Dutch Supreme Court ruled that the notional yield on the net box 3 assets for the years 2013 and 2014 (for which a notional yield of 4% applied) is in breach of the right of ownership at a system level, because this yield was not feasible without having to take significant risks. This is mainly the case with respect to savings. However, the Dutch Supreme Court also ruled that it is up to the Dutch legislator to solve this problem, unless the box 3 regime leads to an individual and excessive burden, which is not easily accepted as all income (including but not limited to wages, retirements benefits and income on substantial interests) should be included in the analysis.
In light hereof, the Dutch Government is currently investigating ways to tax the realized yield with respect to box 3 assets instead of the notional yield.
One-stop-shop system for e-commerce
The one-stop-shop system will be simplified. With retroactive effect to July 1, 2021, it is no longer required to file a separate request for a VAT refund after a negative VAT return has already been filed.