On September 16, the Dutch government released its Budget 2015, containing the Tax Plan 2015 which includes certain amendments to Dutch tax law. The government will discuss the plans the coming weeks in parliament. Further to these discussions, some elements of the Tax Plan 2015 may change. Most proposals will become effective on January 1, 2015. The Tax Plan 2015 contains a number of legislative proposals (hereafter also referred to as "The Bill").
1. Dutch corporate income tax
Tier 1 capital
When determining whether a loan should be treated as equity or debt for corporate income tax purposes, the civil law arrangement agreed by parties is decisive. One of the exceptions to this rule is the profit participating loan (“PPL”) which has the following characteristics: (i) the interest is profit contingent, (ii) the repayment is subordinated to all creditors, and (iii) the repayment term is more than 50 years. A PPL is reclassified into equity for tax purposes.
On the basis of Basel 3 Capital Accord, Europe has set out a capital requirement framework. This framework prescribes minimum requirements for the quantity and quality of capital that banks must hold. On the basis of this framework at least 4.5% of total risk-weighted assets of a bank must consist of Tier 1 capital (primarily equity and retained earnings). In addition, at least 1.5% of risk-weighted assets must consist of additional Tier 1 capital (or Tier 1 capital). Additional Tier 1 capital is capital which has an indefinite duration, is subordinated to all creditors and does not contain a repayment incentive. It also may be profit dependent as the Bank can at its discretion decide to postpone or cancel remuneration payments. On the basis of the aforementioned additional Tier 1 capital requirements the additional Tier 1 capital may qualify as equity as its characteristics may be similar to the above-mentioned characteristics of the PPL.
However, the Bill includes a new article concerning the classification of additional Tier 1 capital. This article stipulates that additional Tier 1 capital must be classified as debt at the level of the issuer and as a receivable at the level of the holder. This article is in line with legislation of various European countries that treats the additional Tier 1 capital as debt instrument for corporate income tax purposes.
2. Value Added Tax
The temporary low VAT rate regime (6%) for renovation and repair activities on newly used real estate (within two years of initial use) which would end on January 1, 2015 is extended to July 1, 2015. After that period, the regular 21% VAT rate applies for these activities. We note that materials used for the renovation/repair activities do not fall under the scope of the temporary regime.
Further, the so called single-bank account policy for VAT refunds which was introduced on December 1, 2013 will be abolished. It turns out that in practice, the implementation of the measure is more complex than anticipated, resulting in high administrative costs for the tax authorities. This also means that the obligation to put the bank account for refund purposes in the name of the actual company claiming the refund is abolished as well.
3. Wage withholding tax
New Expense Allowance Scheme (“Werkkostenregeling”)
As of 1 January 2015 the new Expense Allowance Scheme will be mandatory for all employers. Five measures proposed by the State Secretary of Finance in July this year, have now been published in the Tax Plan 2015. As a consequence of the measures proposed the percentage of the budget will be decreased from 1.5% to 1.2% solely for budget reasons.
- Limited introduction of the necessity criterion (“noodzakelijkheidscriterium”)
For computers, mobile communication and such equipment the so-called "necessity" criterion will be introduced. The main advantage of this criterion is that there will be no difference anymore in the tax treatment between laptops, tablets, smartphones and mobile telephones (i.e. the business use criterion of 90% or 10% will no longer apply).
- Annual settlement system
Any final tax levy (80%) due may be determined once a year and can subsequently be paid – ultimately – in the first reporting period of the following year.
- Group scheme
The budget can be determined on group level of companies. This only applies if at least 95% of the shares in the subsidiary is held by the parent company for the entire calendar year.
- Exemption for industry-specific products (“branche-eigen producten”)
The current existing tax free regime of staff discounts for company-own products shall be introduced again (i.e. maximum discount of 20% and EUR 500 per employee per year) as a specific exemption.
- Elimination of distinction between reimbursements and provisions
There will be a new specific exemption in respect of a number of workplace-related facilities for which now a nil value applies. Which workplace-related facilities will fall under the new specific exemption will be further set out in a Ministerial regulation.
Life-course savings scheme (“Levensloop”)
As of 1 January 2013, life-course savings may be withdrawn for any purpose. In addition a so-called 80% ruling was introduced for the year 2013 and it was possible to withdraw all the savings while only 80% of those savings would be taxed. The individuals who did not make use of this 80% ruling in 2013 are given a new opportunity in 2015. The employer will then be obliged to withhold statutory payroll levies on 80% of the savings accrued on 31 December 2013; the remaining 20% are tax exempt. After utilizing this one-off discount scheme, the employee can no longer participate in the Life-course savings scheme
Based on earlier announced regulations, with effect from 1 January 2015 further changes will be made to the tax frameworks for pension accrual. In brief, the changes are as follows:
- reduction of maximum taxable accrual rate:
- maximization pensionable income (including variable income) up to €100,000 per year;
- introduction of a net annuity (the 3rd pillar) for a pensionable income in excess of €100,000 per year.
4. General tax law
Interest on dividend withholding tax assessments
Interest is charged by the tax authorities on underpayment of tax, while interest is refunded for overpaid tax. However, based on current legislation no interest is calculated on underpaid and overpaid dividend withholding tax. Based on the legislative proposal, interest will also be calculated on underpaid or overpaid dividend withholding tax as from January 1, 2015.
Interest on overpaid tax
Under the current legislation interest due by the tax authorities will be refunded six weeks after the date the tax assessment is issued. On April 18, 2013 the European Court of Justice ruled that a taxpayer should be indemnified for the period the taxpayer could not freely dispose of the amount that was levied in breach with EU legislation (Mariana Irimie-case). Based on the legislative proposal, interest should be repaid over the period commencing on the date the tax was originally paid and should end on the day prior to the date of repayment by the tax authorities, provided that the tax was levied in breach with EU legislation.