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2020 Tax plan

Budget Day Netherlands 2020 / 2020 Tax Plan - (Prinsjesdag)

The Dutch government has published its plans for 2020. We have listed the most important tax measures of the 2020 Tax Plan so that you can see what the impact is or your organisation:

  • The corporate income tax rate is to be reduced to 21.7% per 2021
  • The tax rate for the Innovationbox is to be increased from 7 per cent to 9 per cent
  • Definition of permanent establishment/permanent representative
  • New withholding tax on interest and royalty payments
  • Amendments to the substantial interest rule
  • Amendment of liquidation loss rules for non-EU companies
  • Changes to the supplementary controlled foreign company (CFC) measure
  • Limitation of interest on corporate income tax
  • Payment discount corporate income tax
  • Electronic publications

The corporate income tax rate is to be reduced from 16.5% in 2020 to 15% in 2021 for the first EUR 200,000. For amounts above EUR 200,000 the rate will remain 25.00% in 2020 and will be reduced to 21.7% in 2021.

Taxable amount up to  EUR 200,000  2019 19.0%  / 2020  6.5% /  2021 15.0%
Taxable amount above EUR 200,000 2019 25.0% / 2020 25.0% / 2021 21.7%

As of 1 January 2021 the effective tax rate of the innovation box is to be increased from 7 per cent to 9 per cent. The Innovation box gives you a corporate income tax credit in respect of the profits from your innovationactivities (WBSO statement). It is a financial benefit that can serve as an opportunity. Be sure to contact your Flynth advisor to adhere to all requirements

The introduction of a legal definition of permanent establishment and permanent representative is in accordance with the OECD Model Tax Convention 2017. This is going to apply in non-convention situations. The definition is applicable to corporate income tax, personal income tax and wage tax. The most important change is the term ‘permanent representative’ which is essential in principal-agent situations. The law also specifically stipulates that, in convention situations, the Netherlands will use the definition of the term 'permanent establishment' from the relevant tax treaty.

The reason for this change in legislation is to avoid situations in which according to national tax law there is no permanent establishment/representative where the tax treaty gives the Netherlands the right to levy tax on the activities.

As from 2021, a conditional new withholding tax is now proposed on payments to related entities on interest and royalty payments to related entities in low tax jurisdictions as well as jurisdictions that are regarded as non-cooperative jurisdictions by the EU. Low tax jurisdictions are jurisdictions in which such payments are subject to no tax or a tax rate of less than 9%. The new withholding tax will only cover payments by Dutch resident entities and Dutch permanent establishments to liaised entities. The withholding tax rate will be equal to the maximum Dutch corporate income tax rate (i.e. 21.7% per 2021). Included are economic equivalents, deemed payments (e.g. as a result of transfer pricing differences) as well as accrued interest and royalties. The withholding tax applies regardless of deduction limitation rules. Furthermore, the withholding tax will be levied in abusive situations.

The new tax measures include the amended of the substantial interest rule in the Corporate Income Tax Act. Even in cases where the foreign entity has substantial interest in a Dutch entity and fulfils the Dutch substance requirements, the tax inspector can still establish that there is tax abuse based on the specific conditions and charge corporate income tax on dividends and capital gains. On the other hand, if the foreign entity does not comply with the Dutch substance requirements, it can still establish that there is no tax abuse. In either case, the tax authorities and the taxpayer can count on the indicators of abuse included in the so-called “Danish beneficial ownership cases” of the Court of Justice of the European Union.

The new tax measures include the amended of the substantial interest rule in the Corporate Income Tax Act. Even in cases where the foreign entity has substantial interest in a Dutch entity and fulfils the Dutch substance requirements, the tax inspector can still establish that there is tax abuse based on the specific conditions and charge corporate income tax on dividends and capital gains. On the other hand, if the foreign entity does not comply with the Dutch substance requirements, it can still establish that there is no tax abuse. In either case, the tax authorities and the taxpayer can count on the indicators of abuse included in the so-called “Danish beneficial ownership cases” of the Court of Justice of the European Union.

The deductibility of liquidation losses will be amended and limited as from 2021. This proposal  would limit the deduction of liquidation losses on subsidiaries in the following ways:

  • Only entities with a minimum shareholding of more than 25% in the equity of the subsidiary are entitled
  • Liquidation losses would only be deductible with respect to subsidiaries that are resident in the EU/EEAA
  • the liquidation loss can only be considered if the dissolution of the subsidiary is completed ultimately in the third calendar year following the year in which the subsidiary’s activities were terminated.

As part of a measure to combat abuse with so-called ‘controlled foreign companies’ (CFC), the government would like to include this measure in the Corporate Income Tax Act. The anti-abuse measure roughly means that interest, dividends and royalties of CFCs are deemed to be tainted benefits. This anti-abuse provision does not apply in situations where the CFC brings significant economic activity to bear.  As from 2020 the CFS rules will still apply if the CFC does fulfil the Dutch substance requirements, whereby the main purpose is to be eligible for the exception taxpayers will have an opportunity to demonstrate that the CFC carries out genuine economic activities.

The substantial interest rule in the Corporate Income Tax Act will be amended. Even in cases where the foreign entity with a substantial interest in a Dutch entity fulfils the Dutch substance requirements, the tax inspector can still establish that there is tax abuse based on the specific circumstances and levy corporate income tax on dividends and capital gains. Vice versa, if the foreign entity does not fulfil the Dutch substance requirements, it may still establish that there is no tax abuse. In both cases, the tax authorities and the taxpayer can rely on the indicators of abuse included in the so-called “Danish beneficial ownership cases” of the CJEU.

Tax Authorities now have the option to revise decisions retrospectively It is now The Tax Authorities are now also being given the possibility to revise the decision retrospectively, in certain circumstances. This would be in line with the rules applicable to loss assessments. The earnings stripping rule was introduced in 2019. On the basis of this rule, the non-deductible interest is carried forward to future years. This carried forward interest is determined in a decision. The Tax Authorities are now also being given the possibility to revise the decision retrospectively, in certain circumstances. This would be in line with the rules applicable to loss assessments.

Administrative penalties are no longer allowed to be deducted for tax purposes. Criminal and administrative fines were already excluded  from deduction and remain unchanged. Moreover, payments under criminal decrees will no longer be deductible (including comparable foreign payments).

No tax interest is payable in the case of corporate income tax if a tax return is submitted within four months after the end of the tax year and if the final assessment is imposed in accordance with the return. Under the current scheme, interest on tax can therefore already be charged on the period before the end of the tax return deadline (six months). This is considered unfair and the scheme is now going to be changed so that interest on corporate income tax is only payable if the income tax return is filed after five months.

As per 2021 the payment discount for corporate income tax will be cancelled. Currenty, this payment discount applies if provisional corporate income tax assessment is paid in full amount instead of instalments.

A reduced VAT rate of 9% will be applicable for electronic publications, digital books, newpapers and magazines and any other e-publication published at least three times a year as of 1 January 2020 and onwards will solve the existing difference in VAT treatment of print and electronic publications.

The reduces VAT rate is not applicable to electronic publications and websites of which content contains mainly advertising & promotions, video content or audible music.

Questions?

Onze experts staan voor u klaar

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Do not hesitate if you have any queations about these matters.  Send an e-mail belastingadvies@flynth.nl or call 088 236 77 77.