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19 December 2023 Netherlands passes Act to implement the 2024 tax plan and Pillar Two minimum tax
On 19 December 2023, the Dutch Senate approved the 2024 tax plan that amends the Dutch corporate income tax act and Dutch personal income tax act, in part by including a withholding tax on share buybacks, changes to the entity classification rules and (further) restrictions on the 30% facility (expat regime). The Senate also approved the Minimum Tax Act 2024. The measures are considered to be substantively enacted (under International Financial Reporting Standards (IFRS)) for financial statements ending after 19 December 2023. For purposes of US Generally Accepted Accounting Principles (GAAP), it is enacted when the legislation is published in the State Gazette.1 This Tax Alert highlights the relevant legislative changes as a result of the 2024 tax plan and the Minimum Tax Act 2024, including two changes that have occurred in the parliamentary process leading to the approval of the 2024 tax plan. Discussions in the Dutch Senate that took place before the final vote did not result in any changes to the final Dutch legislation. The Minimum Tax Act 2024, which is based on the EU Directive,2 will introduce a Qualified Domestic Minimum Top-Up Tax (QDMTT) and an Income Inclusion Rule (IIR), both for reporting years starting on or after 31 December 2023, and an Undertaxed Payments Rule (UTPR) for reporting years starting on or after 31 December 2024.3, 4 In October 2023, the Netherlands published a Memorandum of Amendment to the Minimum Tax Act 2024, which included a Safe Harbor for QDMTT and a Transitional UTPR Safe Harbor. Under the current rules, a foreign entity/partnership is compared to the Dutch legal entity/partnership that it most closely resembles based on its legal characteristics. For Dutch tax purposes, the foreign entity is treated similarly to its comparable Dutch legal form (legal form comparison analysis). In addition, limited partnerships (comparable to a Dutch CV) may qualify as either transparent or nontransparent for Dutch tax purposes. Under the new rules, the classification is determined using (a) a comparison method (main rule) that applies if there is sufficient comparison with Dutch legal entities/partnerships; and (b) two alternative methods ((i) fixed classification and (ii) symmetrical classification) if there is insufficient comparison. Furthermore, limited partnerships (comparable to a Dutch CV) will always be considered to be transparent. Following the adoption of the 2024 tax plan, these rules will enter into effect as of 1 January 2025 and, in limited cases, per 1 January 2024. For more, see our more detailed Tax Alert.5 Currently, certain share buybacks schemes are exempt from Dutch withholding tax (WHT), subject to meeting certain conditions and limitations. As of 1 January 2025, following the adoption of an amendment in the House of Representatives, the deemed distribution of reserves in share buybacks of Dutch tax resident listed entities will be taxable against the dividend withholding tax rate of 15%. Following the adoption of an amendment in the House of Representatives, the 30% facility is (further) restricted. Under the current rules, 30% of the taxable salary of incoming employees can be paid tax free for a maximum term of five years. As of 1 January 2024, the 30% facility is restricted as follows:
Transition rules should apply for current 30% facilities (through 2026). Already, the 30% facility was subject to restriction due to earlier-enacted amendments. As of 1 January 2024, the salary basis to which the 30% is applied is capped and set at the public sector pay cap (in 2023: €223,000 (adjusted annually)).
2 See EY Global Tax Alert, EU Member States unanimously adopt Directive implementing Pillar Two Global Minimum Tax rules, dated 15 December 2022. 3 In line with the Pillar Two Directive, the Netherlands will apply the UTPR as of fiscal years beginning from 31 December 2023 in relation to low-taxed Constituent Entities of an MNE Group for which the UPE is located in a Member State that has made the election for delayed application of the IIR and UTPR. 4 See EY Global Tax Alert, Netherlands budget proposals: Key legislative developments for 2024 and 2025, including Pillar Two minimum tax, dated 19 September 2023. 5 See EY Global Tax Alert, Netherlands Proposal to align legal entity and partnership classification rules with international tax standards, including earlier look-through rule, dated 17 October 2023. Document ID: 2023-2098 | |
