Carry-forward
By memorandum of amendment to the Tax Plan 2021, the Dutch cabinet will propose an unlimited carry-forward loss settlement as of 1 January 2022 (currently maximized to 6 years forward).
In the current situation the loss can be fully offset against the profit of the subsequent years up to maximum of 6 years. This means that a profit of EUR 2 mln can be fully offset against last years’ losses, which results in EUR 0,- corporate income tax.
However, in the new situation the company will be able to offset the first EUR 1 mln of the profit and can only offset 50% of the excess of EUR 1 mln when it has sufficient carry-forward loss available. In this situation it would mean that a corporate income tax has to be paid on 50% of the excess of EUR 1 mln, which results in a taxable profit of EUR 0,5 mln on which corporate income tax will be levied. On the other side, the carry-forward loss can be used for an unlimited time of period as from 1 January 2022.
Informal Capital
By memorandum of amendment to the Tax Plan 2021, the Dutch cabinet will propose to prevent the
tax avoidance through informal capital.
In an international transaction a Dutch company can deduct its taxable profit base with some costs in the Netherlands, while the country of the affiliated receiving party doesn’t levy any taxes on the received amounts. As a sample; Interest payment of a Dutch company can be deducted from the taxable profit, resulting the Dutch company paying less tax. The received interest is not taxed in the country of the affiliated party. This is also applicable for royalties
Interest deduction limitation
It has been observed that the interest deduction restriction in Section 10a of the Corporate Income Tax Act, which aims to prevent base erosion within a group context through interest deduction, is increasingly effectively leading to an exemption from negative interest and currency gains on land-based debts. The interest deduction limitation in Article 10a of the Corporate Income Tax Act will be adjusted so that it can no longer lead to an undesired exemption.
Corporate Income Tax
As from 2021 the corporate income tax will change in the Netherlands.
In 2020 corporate income tax of 16,5% is paid on the taxable profit up to EUR 200.000,- Any excess of the aforesaid amount is taxed at 25%.
In 2021 corporate income tax of 15,0% is paid on the taxable profit up to EUR 245.000,- Any excess of the aforesaid amount is taxed at 25%.
In 2022 corporate income tax of 15,0% is paid on the taxable profit up to EUR 395.000,- Any excess of the aforesaid amount is taxed at 25%.
Innovation box
As of January 1, 2021, the effective rate of the innovation box will increase from 7% to 9%. This mean that profits by innovative companies in the Netherlands are higher taxed.
Additional substance requirements for intra-group funding / licensing
Additional substance requirements will apply for Dutch entities of which the activities exists for more than 70% of directly or indirectly receiving and paying interest / royalties / rent from a foreign group company. To be considered as a Dutch taxpayer, the additional requirements to be met are: 1) 100,000 Euros in wage costs and 2) have office space for at least 24 months. If these requirements are not met, information is exchanged with the country from which the interest / royalties / rent is paid (source state). The consequence of this could be that the source state withholds treaty benefits.
Liquidation loss regulation
The liquidation loss regulation will be tightened up. There are three new conditions for taking into account a liquidation loss, which applies for a liquidation loss as from EUR 5 mln:
The above scheme is an exception to the participation exemption: losses associated with the liquidation of participating interests can still be charged to the Dutch profit. For permanent establishments, a comparable exception applies as well.
Participation exemption
It has been decided not to adjust the participation exemption for intermediate holding companies in the Netherlands. It was considered to tightening-up measures for Dutch intermediate holding companies without sufficient substance in the Netherlands. At this moment Dutch the cabinet don’t see reason to adjust the participation exemption for such intermediate holding companies. It will be investigated to come up with regulations in respect to information exchange with other countries regarding such intermediate holding companies.
Witholding Tax on dividends
Expansion of withholding tax for dividends was announced on the 29th of May 2020. Dividends to low-taxed jurisdictions will be taxed in the Netherlands as from 1st of January 2024. The measures will be worked-out before the end of the cabinet term.
Witholding Tax on interest/royalties
Through the 2021 Withholding Tax Act, part of the 2020 Tax Package, a conditional withholding tax will be introduced on outgoing interest and royalty payments:
The withholding tax rate becomes equal to the highest corporate tax rate of 25%, which is the rate 2021. The law will enter into force on 1 January 2021.
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NAZALI TAX & LEGAL |