Tax policy- and implementation agenda
On 8 May 2023, the Dutch State Secretary for Tax Affairs sent a letter to the House of Representatives including an expected planning for legislative tax proposals.
This letter provides more insight into the plans for tax policy and implementation, which have also been announced in the Spring Memorandum of 28 April 2023. In addition to the intended legislative processes, insight is also provided into how the government’s policy ambitions are being realized by the Tax and Customs Administration.
In this alert, we elaborate on certain important fiscal measures which are announced. We will also outline when these measures are expected to enter into force.
Box 3 alterations – bridging period
The taxation of savings and investments for Dutch personal income tax (Box 3) will be adjusted. During the bridging period until 2027, a few adjustments will be made to align the calculation of the deemed returns with the actual returns on these assets.
The share in the reserve fund of a Homeowners’ Association (VVE) and the money on a third-party account of a civil-law notary are regarded as ‘bank balance’ instead of ‘other investments’. The deemed return on bank balances is lower than the deemed return on other investments.
Mutual claims and debts between tax partners and, in some cases, parents and their minor children are neutralized from a Dutch tax perspective. As a result, these receivables and debts no longer have to be included in the tax returns.
Taxation of share deals real estate
At the beginning of 2023, legislation on share deals relating to real estate was submitted for consultation. This legislation aims to prevent the possibility to transfer new immovable property through a share transaction without levying VAT and real estate transfer tax. One of the comments that emerged during the consultation was that no transitional arrangements were included in the proposed legislation. The government has announced that it will provide for a transitional arrangement. The amendments will be announced in the 2024 Tax Plan, announced on 19th September 2023.
Changes to the Business Succession Scheme (BOR) and the Transfer Scheme (DSR)
The BOR and DSR will be adjusted; real estate which is rented out to third parties is automatically classified as investment capital. The intended purpose of this is to simplify the application of the BOR and DSR. The adjustment to the law which should make this possible will be presented in the Tax Plan 2024.
The government also intends to further simplify the BOR and DSR. The purpose is to solve certain bottlenecks and prevent abuse of the facility. This concerns the following changes:
- End of the 5% efficiency margin in the BOR and DSR;
- Equity can only qualify for the BOR and DSR insofar it is used for business purposes;
- Access to BOR and DSR will be limited to regular shares with a minimum interest of 5% (with the exception of preference shares issued in the context of business succession and with retention of the current dilution arrangement);
- Relaxation of the BOR possession and continuation requirement;
- Minimizing tax planning on the BOR;
- Decrease of exemption for the going concern value BOR from 85% to 70% and increase of the threshold value to €1.5 million.
In his letter, the State Secretary indicates that it is not clear when these changes will be implemented due to capacity limitations of the Dutch Tax Authorities.
Anti-Dividend Stripping Measures
Following the internet consultation held in early 2022 on possible measures to prevent dividend stripping, the government has considered a number of options for targeting this form of tax avoidance. Two of these options were considered for implementation: the first concerns additional documentation requirements and the second relates to the introduction of a record date (alternatives D and E of the internet consultation). The last option will be included in a bill.
This measure should clarify the question who is entitled to the dividend at a specific time and is therefore entitled to a (dividend)tax refund or deduction. In addition, further measures are being set out to improve the information and evidence backlog of the Dutch tax authority. This proposal involves a change to the current burden of proof. The proposed measures are expected to be included in the Tax Plan 2024.
Adjustment of the minimum capital rule regarding the internal treasury rule and applicable rate
Since banks and insurance companies are not affected by the generic earningsstrippingrule in the Dutch corporate income tax act, an alternative measure was introduced, namely the minimum capital rule, which focuses specifically on financial institutions. In principle, the minimum capital rule applies to entities that have a license to conduct bank or insurance activities. The specific interest deduction limitation for banks and insurers has a disproportionate effect on the internal treasury activities of banks. As such, the minimum capital rule is being adjusted on technical points to prevent this distortion by increasing the rate from 9% to 9.4%.
Equity at risk for Dutch financial services companies
Besides the European proposal on preventing the misuse of shell entities and conduit companies (ATAD 3/ Unshell directive), the Dutch government is also assessing how to minimize the use of conduit companies unilaterally. A Dutch financial services company is considered to be the beneficial owner of received royalty- or interest income, provided it has sufficient equity at risk. A Dutch financial services company is deemed to have sufficient equity at risk when its equity amounts to the lower of (i) 1% of the outstanding loans or (ii) EUR 2,000,000. The legislator is considering abolishing this safe harbor for an open standard (the threshold for equity at risk will be based on facts and circumstances), thus aligning with a more economic approach. This should make it less attractive for shell companies to establish themselves in the Netherlands. The legislator intends to revisit the proposed bill before 7 July 2023.
Entry into force new legislation for funds for joint account and tax classification rules for entities
The entry into force of the new Dutch tax classification rules for Dutch and foreign entities, such as limited partnerships, and the changes for tax rules for fund for join account are postponed until 1 January 2025. Transitional arrangements will be introduced as from 1 January 2024, except for the transitional arrangements which relates to real estate. The transitional arrangements which see to real estate will entry into force from January 1, 2025. This means that funds for joint account, open limited partnerships and the participants in such entries should be able to restructure, tax-free during 2024, except for any real estate structures. The actual scope of the arrangements will be released during the 2024 Tax Plan.
The lowering of the threshold of the earningstrippingrule for real estate entities with leased real estate (to third parties). (Tax plan 2025)
Recently, new attention was drawn to the risk of ‘splitting-up’ companies (in multiply entities) in order to make more frequent use of the threshold (€ 1 million) of the generic earningstrippingrule. This measure will be more strict as of 1 January 2025 onwards by limiting the threshold of the earningstrippingrule for real estate entities that rent out real estate (to third parties). As a result, the possibility of interest deduction is limited to the threshold that is the balance of interest paid and received up to 20% of the company’s EBITDA.
In addition to the legislative proposals and measures included in the Tax Plan 2024, a number of separate legislative proposals have been included in the second tax policy- and implementation agenda.
DAC 8 is the seventh revision of the Directive Administrative Cooperation. Following the revision reporting entities will be required to share information regarding taxpayers with the tax authorities in the EU on “crypto asset services”. This information is then also shared with other European tax authorities. The service providers will be required to carry out know-your-client procedures on EU clients, regardless of whether the providers themselves are established in a European jurisdiction. This affects individuals or entities that use platforms that offer crypto-asset services. Furthermore, crypto-asset service providers must exchange information on domestic and cross-border transactions of reportable crypto-assets with the competent tax authorities.
During the meeting of the ECOFIN Council of 16 May 2023, it is expected that the member states reach an agreement on the DAC8 proposal. The directive should enter into force on 1 January 2026.
Current European legislative procedures
Lastly, the annex to the second tax policy- and implementation agenda contains an overview of current European legislative procedures. Some proposals and dates to keep an eye on are:
- DAC 7 – Directive proposal for tax data exchange digital platforms.
Entry into force: 1 January, 2023 / exchanging will take place as of 1 January, 2024
- Pillar 2 – Directive proposal for minimum tax on multinationals.
Entry into force: 31 December, 2023
- ATAD 3/ Unshell directive – Directive proposal to combat abuse by conduit companies.
Entry into force: 1 January, 2024
With respect to the ATAD 3 /Unshell directive, the proposal is to be approved during the ECOFIN Council of 16 May 2023. We will be sharing an article with more detailed information on the impact of the directive following the Council meeting.
If you have any question regarding the above, please feel free to contact us.
Gabriël van Gelder Maiken Rooker Guusje Mulders