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21 September 2021 The Netherlands publishes 2022 budget proposals On 21 September 2021, the Dutch Government published the Dutch budget proposals for 2022. The proposals are subject to review and discussions by the Parliament and may be subject to change. Enactment of the final proposals is expected in December 2021, with the current legislative status per proposal shown below in brackets. All the key corporate income tax (CIT) and withholding tax proposals as included below are as expected and were already announced. More details on these proposals were either already reported through earlier EY Global Tax Alerts (see Endnotes) or will be shared as part of new EY Global Tax Alerts that are forthcoming in the next few days. The Dutch CIT rates will remain the same, however the amount of taxable income subject to the lower 15% rate will increase to €395,000 (from €245,000). This was enacted in 2021. The headline Dutch CIT rate will remain at 25% and will apply to taxable income above that €395,000 threshold. Key takeaway: Review presence of entities formed under Dutch corporate law and/or residing in the Netherlands that qualify as reverse hybrid entities and assess potential impact of the proposal. A reverse hybrid entity is an entity that is tax transparent in its resident/formation state but treated as opaque (and thus as a regular foreign taxpayer) from the perspective of the state of a related participant in such entity. The current budget day proposal is the final piece of the European Union (EU) Anti-Tax Avoidance Directive II (EU ATAD II) implementation. Under the proposal, entities formed under Dutch corporate law and/or residing in the Netherlands that qualify as reverse hybrid entities, will generally be treated as domestic taxpayers that are regularly subject to Dutch CIT and will become withholding agents for Dutch dividend withholding tax and for conditional interest and royalty withholding tax purposes. Correspondingly, exemptions such as the participation exemption and withholding tax exemptions included in the relevant tax codes would generally become available for these reverse hybrid entities. Effective date: Fiscal years starting on or after 1 January 2022 (with potential retroactive impact to fiscal years starting on or after 1 July 2019, in specific cases). Key takeaway: Review (potential) international transfer pricing mismatches and assess potential impact of the proposal. Currently the Netherlands’ transfer pricing rules require a unilateral upward or downward correction of commercially applied transfer prices between related parties to ensure reporting of an arm’s-length profit for Dutch tax purposes. The proposal intends to unilaterally address international double non-taxation resulting from the current rules. The proposed rules would apply to Dutch taxpayers that are involved in international related-party transactions, including capital contributions and dividends, that are not based on arm’s-length conditions. In that case, a downward adjustment of the Dutch taxable income (based on the Dutch ”informal capital or deemed dividend” doctrine) would only be allowed to the extent a corresponding upward adjustment is included in the taxable base of a profit tax at the level of the counterparty. This would also apply to so-called year-end adjustments. Similarly, for assets acquired from related parties, an upward adjustment of the asset’s cost price at the level of the Dutch acquiring taxpayer would only be allowed to the extent a corresponding adjustment is recognized in the taxable base of a profit tax at the level of the transferor. Finally, a conceptually similar, but opposite adjustment mechanism is included for intercompany debt transferred to a Dutch taxpayer below the arm’s-length value. If a depreciable business asset was acquired by a Dutch taxpayer in fiscal years starting on or after 1 July 2019 and before 1 January 2022, the proposal could effectively have retroactive impact where the transfer price agreed was not the arm’s-length value. In these instances, the proposed rules would limit/adjust the basis for annual depreciation for such business asset in fiscal years starting on or after 1 January 2022. Key takeaway: Review Dutch domestic taxpayers with (historically) material Dutch dividend withholding tax credits/claims and assess potential impact of the proposal. In principle, Dutch domestic taxpayers can offset against their Dutch taxable profit – among other items – Dutch dividend withholding tax that is withheld on their behalf in connection to their Dutch taxable income. Even in the case of a net loss, such withholding tax could generally be reclaimed to the extent there is insufficient Dutch taxable profit in a given year. Foreign companies that are not subject to Dutch CIT but otherwise in a comparable situation with these Dutch domestic taxpayers are limited in these credit and/or reclaim possibilities. Based on the judgment of the EU Court of Justice in the Sofina case, this distinction is in principle not allowed. Therefore, the current proposal intends to limit the possibility for Dutch domestic taxpayers to credit and/or reclaim such Dutch dividend withholding tax to the extent they report net taxable profit in a specific year (in principle with carryforward of an unused balance). This measure intends to restore the equal treatment of these Dutch taxpayers with foreign companies that could in certain cases not effectively and/or equally credit or reclaim such Dutch dividend withholding tax. Effective date: Fiscal years starting on or after 1 January 2022 (with retroactive effect for any unused CIT loss balance that is available at the current fiscal year-end). Key takeaway: Assess impact of changes in the utilization of net operating loss balance and (where relevant) review strategies to accelerate tax loss utilization before the current fiscal year-end. On 21 May 2021, it was formally confirmed (through Royal Decree) that the annual carryforward and carryback loss utilization for CIT losses will be limited to €1 million of taxable profit, plus 50% of the taxable profit exceeding €1 million. Loss carryback will remain at one year but carryforward will be indefinite (compared to six years under prior legislation). These changes will also apply to any unused CIT loss balance that is available at the current fiscal year-end. Alignment of legal entity and partnership classification rules with international tax standards – [Proposal] Effective date: To be determined, updated legislative proposal expected within Q4 2021 – Q2 2022 window. On 29 March 2021, the Dutch Government released for public consultation a draft proposal to revise the Dutch classification rules for entities incorporated under foreign law and partnerships formed under Dutch as well as foreign law. The proposed new entity classification rules are intended to be better aligned with international tax standards. It is expected that this will result in a reduction of potential hybrid outcomes due to mismatches in entity classifications between the Netherlands and foreign jurisdictions.
Document ID: 2021-5973 |
