Dividend withholding tax and capital gains
The Dividend Withholding Tax Act 1965 will be abolished with effect from 1 January 2020. Simultaneously, a new conditional withholding tax will be introduced to apply to dividend payments: (i) to affiliated shareholders in low tax jurisdictions (i.e. countries with a main statutory corporate income tax rate of 7% or less), (ii) to countries on the EU blacklist and (iii) where the arrangements have a tax avoidance motive. The new dividend withholding tax rate will be 23.9% (the current rate is 15%).
With effect from 1 January 2021, a conditional withholding tax will also be introduced for interest and royalties, which will apply in the circumstances described above. Note that the Netherlands currently does not impose a withholding tax on interest and royalties, unless these payments are requalified for tax as dividends.
It is also proposed that in a situation as described above, capital gains realized on a disposal after 1 January 2020 by non-resident holders of Dutch shares could be subject to this new withholding tax.
Implementation of the ATAD1
The Dutch government is of the view that the current Dutch rules already include an effective general tax anti avoidance framework and the existing exit taxation rules only require marginal changes. Therefore, the implementation of ATAD1 will only result in a new earnings stripping rule and a measure for controlled foreign companies ("CFC").
Earnings stripping rule
The earnings stripping rule limits the deductibility of "excess" net interest (i.e. the excess of interest costs over interest income, including foreign exchange results on debt). Excess net interest expenses will only be deductible up to 30% of the taxpayer's adjusted fiscal profit (EBITDA). A de minimis of EUR 1,000,000 will apply: excess net interest expenses up to this amount can always be deducted. If some of the interest is not deductible due to the application of this rule, that excess can be carried forward without limitation to subsequent years. The Dutch government opted not to implement the group ratio alternative or a grandfathering rule for existing loans, and the restrictions will also apply to stand-alone entities and financial institutions.
If a Dutch corporate taxpayer, (together with its related companies or a related person) has a direct or indirect interest of more than 50% in a low-taxed foreign subsidiary (CFC) or has a low-taxed permanent establishment, the CFC rules will attribute non-distributed passive income (such as interest, royalties, dividends and leasing income) of these entities to the Dutch corporate taxpayer, on a pro rata basis and to the extent that this income has not yet been distributed. At the level of the Dutch corporate taxpayer this income will be subject to Dutch corporate income tax at the main rate. Any foreign profit taxes can be credited against the Dutch corporate income tax payable, subject to certain conditions. An exemption applies for profits from CFC's material economic activities.
Other amendments with impact for international business
The other proposed changes in the Tax Plan 2019 are:
- The main corporate income tax rate will be reduced from 20% (first EUR 200,000 taxable profit) and 25% to 16% and 22.25% in 2021. For 2019 the proposed rates are 19% and 24.3%;
- The tax loss carry-forward period will be reduced from nine to six years for losses incurred after 2018. The tax loss carry-back period will remain one year;The interest deduction limitation for acquisition holding companies and excessive subsidiary debt financing will be abolished with effect from 2019;
- The limitation of the holding company loss set-off will be abolished;Limitation of tax depreciation on buildings used within the group: these buildings can only be depreciated if the book value is over 100% of the so-called WOZ-value of the building;
- Fiscal investment institutions subject to a zero corporate income tax rate will no longer be permitted to invest directly in Dutch real estate, with effect from 2020;
- The duration of the 30%-facility for expats will be reduced from eight to five years with no transitional period.
The 2019 Tax Plan may be subject to changes during the Parliamentary discussions. The Second Chamber of Parliament is expected to vote on the final content on 15 November 2018. By 11 December 2018, the First Chamber should decide whether or not the draft bills that form part of the Tax Plan will be adopted or rejected.