1. Corporate income tax
1.1 Flag requirement
No general exception to the EU/EEA flag requirement in 2017
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 did not apply in 2016 and will also not apply in 2017. This means that vessels added to the fleet during this calendar 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.
Please note that the exceptions do not apply to dredgers and tugs.
1.2 Concurrence of the tonnage tax regime and the accelerated random depreciation facility
The accelerated random depreciation facility for seagoing vessels ("ARD for seagoing vessels") is applicable to vessels that qualify for the Dutch tonnage tax regime. In the past there was discussion on whether the application of the tonnage tax regime and the application of the ARD for seagoing vessels could concur. In case the profit of a vessel qualifying for the tonnage tax regime was split into a part falling under the scope of the tonnage tax regime and a part falling under the normal corporate income tax regime, the question rose whether a taxpayer could, at the same time apply the tonnage tax regime to the former part of the profit and the ARD for seagoing vessels to the latter part of the profit. Though the Dutch tax authorities initially intended to take this matter to court, the Ministry of Finance has decided to confirm that the tonnage tax regime and the ARD for seagoing vessels can concur. As such, in case the profit of a vessel qualifying for the tonnage tax regime and the ARD for seagoing vessels is split into a part falling under the scope of the tonnage tax regime and a part falling under the scope of the normal corporate income tax regime, a taxpayer can apply the tonnage tax regime and the ARD for seagoing vessels simultaneously.
1.3 Case law
Supreme Court 16 December 2016 / Tonnage tax regime applicable as from the beginning of the financial year in which the taxpayer filed the request for the application of the tonnage tax regime
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 accelerated random depreciation ("ARD") facility 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 Dutch 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 Dutch 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 Dutch tax authorities and ruled that the ARD 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 from 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 and the Court of Appeal ruled that the Dutch tonnage tax regime should be applied 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.
In line with the judgments of the District Court and the Court of Appeal and in keeping with the clear legislative text, the Supreme Court ruled that the tonnage tax regime applies from the beginning of the year in which the tonnage tax request is made, i.e. in this case 1 January 2010.
2. Tax treaties
2.1 Germany-Netherlands Income Tax Treaty: new protocol
In April 2012 the Netherlands concluded a new tax treaty with Germany. This treaty became effective on 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 new protocol that became effective as from 1 January 2017, however, the income from employment exercised aboard a vessel will still 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.
3. Wage tax / Pensions
3.1 Working with independent contractors: how to proceed?
Until 1 May 2016, no wage tax and social security withholding obligations existed if an independent contractor working through his personal company had a valid declaration from the Dutch tax authorities confirming the self-employed status (Verklaring arbeidsrelatie or `VAR'). This declaration was abolished by the government as of 1 May 2016 and was replaced by a (voluntary) approval procedure. For obtaining a VAR it was relevant whether an independent contractor was considered entrepreneur for tax purposes or not. As of 1 May 2016 this is no longer decisive. For each separate work relationship it will now be necessary to determine whether or not a (deemed) employment relationship exists and as a result obligations arise for the company hiring the independent contractor. Model agreement texts are being published on the website of the tax authorities which may be used where possible and also provide insight into the do's and don'ts when hiring an independent contractor. Companies can also submit agreements with independent contractors to the tax authorities to ask for approval that the relationship between parties does not qualify as an employment relationship and consequently no wage tax withholding obligations and payment of social security contributions are applicable.
Due to fierce criticism by both independent contractors and companies on this new legislation and the uncertainty that it causes, the State Secretary announced by the end of last year that the government would take a closer look at the current conditions for having an employment relationship and the application of the model agreement texts. In view hereof, the period until at least 1 January 2018 serves as implementation period in which the Dutch tax authorities will coach companies to comply with this new legislation, but will not enforce repressive measures, provided that the parties involved are not in bad faith.
3.2 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 a resident of the Netherlands or an EU/EEA country. 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 met. Our current experience is that the tax authorities are closely reviewing the application of this beneficial regulation, especially in offshore shipping situations, since not all types of activities qualify for tax relief. Based on the law, only the following activities may 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. It may be helpful to discuss application of this regulation upfront with the tax authorities. To get a better understanding of the compliance level in your company, we have a quick scan available.
3.3 Employment cost scheme Seafarer's wage tax relief
As of 1 January 2015, every employer in the Netherlands is obliged to apply the new Dutch wage tax rules for employee benefits, referred to as the employment costs scheme ("werkkostenregeling"). The employer is entitled to certain tax exemptions and to a tax-free employment costs budget of 1.2% of the sum of taxable wages in a year. To the extent the employer's tax-free budget is exceeded, an 80% employer tax is applicable.
Note that this employer tax, if due for the tax year 2016, must be included in the first wage tax return of 2017. In case of monthly wage tax returns, this will be the January wage tax return, which must be filed and paid by the end of February 2017 ultimately. To this effect, an annual calculation as well as a detailed administration is required.
For shipping companies it is not always beneficial to bring employee benefits under the employment cost scheme since this may have a negative effect on the benefits resulting from the seafarer's wage tax relief. This depends among others on the tax position of the company (the use of the tax-free budget and possibilities to offset the wage tax relief).
The legal retirement age will increase to 68 years on 1 January 2018. As a result of this, all or nearly all pension schemes have to be adjusted before the aforementioned date to avoid substantial tax consequences. In case of mandatory participation in an industry wide pension scheme, the adjustment is in general not subject to approval of the works council and employees. In all other cases, the adjustment of the pension scheme is subject to approval of the works council and all employees. In view hereof, it is highly recommended to start the adjustment of the pension scheme shortly.
4. Value added tax
4.1 Unpaid debts new procedure for reclaiming VAT in the Netherlands
Already remitted VAT on debts that are not paid by debtors can be reclaimed from the tax authorities. The methods that had to be used in the Netherlands were regarded time-consuming for both business and tax authorities. Moreover the procedures were regarded difficult and often lead to discussions with the tax authorities. The legislator identified this and introduced a new method on 1 January 2017. The main elements from the renewed procedure are:
1. The right to reclaim the VAT arises at the moment the remuneration is not received and one year has lapsed since the invoice became due.
2. The amount of VAT to be reclaimed can be reclaimed through the periodic VAT return. 3. In case the debts afterwards will be fully or partially paid, the VAT becomes due again. 4. In case debts are transferred (for instance in case of factoring), the purchaser of the debts takes over the position of
the creditor with respect to the refund procedure. 5. The new rules also apply to debts that already existed on 1 January 2017 provided that the period of one year starts
at 1 January 2017. 6. In case VAT on received invoices is deducted, the VAT becomes due again in case the invoice has not been paid
and one year has lapsed since the invoice became due. The VAT becomes deductible again when the invoice is paid afterwards.
The new procedure is welcomed by business although it requires some amendments to administration / ERP systems. Especially monitoring the one year period will become important.
4.2 Substance over form in VAT: the Plkl-case
Businesses dealing with cross border movements of goods, in supply chain transactions or as trade to third parties, are in general well familiar with the discussions regarding the potential refusal of the VAT exemption for intra-Community supplies (zero rate) because of "lack of documentation" or other formal requirements. Especially in case high numbers of turnover are involved, such refusal can lead to a significant VAT burden.
In the case Plckl (C-24/15, 20 October 2016), the European Court of Justice held that an EU Member State cannot refuse to exempt an intra-Community transfer from VAT merely on the ground that the taxable person has not provided a VAT identification number issued by the Member State of destination, where there is no specific evidence of tax evasion, the goods have been moved to another Member State and the other conditions to benefit from the VAT exemption are also met.
Plckl was an entrepreneur who transported a vehicle from Germany to a dealer in Spain. Because Plckl could not present a Spanish VAT number, the VAT exemption for intracommunity trade (zero rate) was refused by the German VAT authorities. Nonetheless, Plckl could prove the cross border transport by showing the CMR consignment note and the fact that the vehicle was subsequently locally sold to a Spanish company.
By stating that it was, given the facts, incorrect to refuse the VAT exemption for Intra-Community supplies, the ECJ thus confirms its already well established "substance over form" theory, as it also did in its Barlis (C516/14, 15 September 2016) and Senatex GmbH (C518/14, 15 September 2016) judgments where it waived formal (invoicing) requirements as long as the taxable person has met the substantive requirements to deduct input VAT.
These judgments will likely constitute a relief for economic operators who often have to spend considerable time and efforts to make sure that issued and received invoices meet the formalistic requirements of the Member States they are operating in while they can provide full evidence that all substantive requirements under the common VAT system have been met.
5. EU / state aid
5.1 Introduction of Swedish tonnage tax regime
The EC has assessed the compatibility of the proposed Swedish tonnage tax regime with the internal market and has concluded that this regime is in line with the Maritime Guidelines. The measures as proposed are fairly in line with other EU tonnage tax regimes that are already approved by the EC. The Swedish tonnage tax regime can be applied to financial years starting on or after 1 January 2017.
5.2 The Netherlands abolished CIT exemption for its seaports
In July 2014, the EC opened an in-depth investigation in respect of Dutch provisions exempting port operators from corporate tax as the EC 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 from 1 January 2016. This law, however, contained a tax exemption for six publicly-owned Dutch seaports. The EC considered that the Dutch legislation in principle addressed its state aid concerns but required that the Netherlands would put an end to the corporate tax exemption granted to the specific seaports in order to remove the distortion of competition. The Netherlands agreed to the measures proposed by the EC and, as such, abolished the exemption for the specific seaports on 1 January 2017.
In July 2016, the EC also opened an in-depth investigation into the taxation of certain Belgian and French ports. In case the EC draws the conclusion from the in-depth investigation that the Belgian special tax regime for certain ports and the French exemption of corporate tax for certain ports constitute unlawful state aid, the EC may require Belgium to abolish this special tax regime and France to abolish this CIT exemption.
5.3 EU exchange of tonnage tax rulings
In response to recent EU and OECD measures, the Netherlands is going to exchange information on certain rulings issued as from 2010 with affected jurisdictions. In this respect, tonnage tax decisions are considered rulings.
The Dutch tax authorities are currently gathering information with regard to the tonnage tax decisions by way of providing companies in possession of a tonnage tax decision or other rulings with an Excel template (the "Template"). If completed, this Template contains all information that the Dutch Tax Authorities want to exchange on the ruling. The Template requests a basic set of information, including contact details of the taxpayer, the main topics covered by the ruling and the entities (potentially) affected by it.
The Dutch tax authorities decide which information will be exchanged and to which countries. Under the EU initiative the Dutch tax authorities will upload the Template to the EU database to which all EU Member States as well as the EC (to limited extent) have access. It is important to note that, at a later stage, the Dutch tax authorities may exchange the entire text of the ruling upon request of a foreign jurisdiction.
The Dutch tax authorities give taxpayers the choice to either complete the Template themselves, or let them do so. Although the Dutch tax authorities are able to deviate from the information that the taxpayer will provide them with by
completing the Template, we still advise to complete the Template yourself, in order to be able to direct and interpret the
information request as much as possible.
Should you have any questions, please feel free to contact one of the following members of our shipping team:
Chantal van der Linden email@example.com
You can of course also approach your own contact person within Loyens & Loeff N.V.
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.