On Queen’s Speech, ‘Prinsjesdag’ in Dutch, the new Dutch cabinet Rutte III pronounced its ambitious Tax Plan 2018. Over the last months, the Tax Plan instigated many discussions and far more confusion. Here, you may find an overview of the actual fiscal changes that will go into effect at January 1, 2018. Yet, precaution is advised, since the final ruling of the First Chamber takes place on December 19. Until then, the proposed decrees may still be adapted.
Personal Income Tax
Box 1 In 2018, the different tax levies will be based on two instead of three brackets. The first bracket levies 36,93% over income up to EUR 68.600. Income surpassing that threshold is subject to the second bracket, which applies a 49,5% tax rate.
Box 2 For box 2, the tax rate will gradually increase. The fiscal years 2018 and 2019 thus come with a rate of 25%. By 2020, tax authorities apply a 27,3% rate. This will subsequently amount to 28,5% in 2021.
Box 3 On contrary, for the return on equity, the Dutch tax authorities will apply a lower tax rate. However, by how much it will be decrease, remains yet to be seen.
In addition, the maximum general tax reduction over the balance becomes EUR 2.265 instead of EUR 2.254.
Energy investment relief Instead of 55%, entrepreneurs with investments included in the Energy list may only deduct 54,5% of their investment from the profit. In order to apply this deduction, entrepreneurs should first submit a request to the RVO, though.
Non-executive directors Starting January 1, 2018, the fictitious employment no longer apply to non-executive directors of listed companies. Motivating the annulment is the government’s aim to provide both non-executive as well as supervisory directors with one and the same regime, since the fictitious employment was already annulled for the latter in 2017.
Excessive severance allowance In the future, the only unconditionally granted rights to share options won’t be included in the calculation of the excessive severance allowance. However, they those rights will be included if they became unconditionally a year before the end of the employee’s term.
Volunteers allowance Volunteers allowances will be free of taxes for amounts up to EUR 1.700 instead of the previous threshold of EUR 1.500.
Corporate Income Tax
Corporate Income Tax Rate In contrast to the rate of personal income taxes, the Dutch government will gradually lower the rate of corporate income taxes. The initial 25%-rate will still be in effect during 2018. It drops down, though, to 24% at the start of 2019. The rate further decreases to 22,5% for 2020. This reduction will finally stagnate in 2021 at a rate of 32%. For the rate over taxable profit under the EUR 200.000, a similar reduction applies. Tax authorities will levy 19%, instead of the previous 20%, over the profit in 2019. A year later, that rate will be 17,5% before being lowered to 16% in 2021. The EUR 200.000 threshold, however, will remain the same.
Innovation Box rate
Profit resulting from innovative business activities will be subject to a levy of 7% instead of 5%.
Relief on donations
The ruling concerning the potential relief on donations to cultural enterprises will remain in effect during 2018. Only after the final ruling of Rutte III in 2019, the ruling may be annulled.
Double business motive test for arm’s length principle
A company in debt to a another company within it’s fiscal unity, should prove that debt was indeed caused by business activities, instead of maleficent purposes, in case the debt concerns a loan obtained from a third party. The company in question will have to verify the arm’s length of the debt by the so called double business motive test.
Written-down debts and the liquidation loss regulation
When a body that is or was part of a fiscal unity holds a debt, the write-down loss on that debt will no longer be deducted from the profit. The annulment of the deduction only concerns losses attributed to another company within the same fiscal unity.
In case the debtor is subsequently liquidated, the fiscal unity is entitled to a compensation for the loss in profit. To assess that loss, Dutch tax authorities do take the written-down losses of the debt into account. In order to avoid a double loss recognition, the deduction of the write-down loss only applies to those losses for which a receivable from the debtor has not been consolidated into the fiscal unity. In addition, the capital of the liquidated body is also accounted for in the assessment of the loss. This capital is based on the actual value of the body if this value is less than the body’s fiscal power.
Full exemption regulation for foreign business profits
In the future, foreign bodies will no longer be subject to the corporate income tax obligation in the Netherlands, and thus only filing corporate income tax in the head office’ country of residence. As to exclude artificial transactions or constructions, the foreign enterprise should be in possession of a substantial share in a Dutch corporation. Second, the exemption concerns internal user fees. Hence, the thereby avoided income tax should fall under dividend tax.
For multinational with group entities in the Netherlands, the ultimate parent company may submit the country report to local tax authorities of its country of residence. They will in its turn send the report to the Dutch tax authorities.
Dividend withholding tax
More than all other proposals, the alleged abolishment of the dividend withholding tax made a wave in the Netherlands. An important date to remember, is December 19, 2017, when the final ruling of the First Chamber should take place. Only after approval of the First Chamber, the adjustments to the withholding tax obligation and exemption proposed by the current government will go into effect. Hence, the withholding tax itself will not be discarded yet.
However, the abolishment of the withholding tax is still possible, since it is indeed a bill in the coalition agreement by the new government Rutte III. Therefore, Rutte III may only start its negotiations regarding the bill in 2018. If the government comes to an agreement, the dividend withholding tax will not be abolished before 2019.
Dividend withholding tax obligation
Starting 2018, Dutch holding corporations will be obligated to dividend withholding taxes when at least 70% of the activities they performed in the past years were holding activities and they are in the possession of qualifying membership rights. Together with the rights of other connected members, these entitle the holder to 5% of the annual profit or to repayments in case of liquidation. The revenue of these freely tradable membership rights include the interest on deposits, distributions of profits and remunerations for the holding corporation’s capital provided by its members.
In addition, when in possession of membership rights comparable to the capital divided into shares, the withholding obligation is also imposed on non-holding corporations.
Finally, the coalition agreement maintains the withholding obligation for the profit of fiscal investments enterprises if they pay (part of) their profit out to exempt bodies. Such enterprises will be able to request a recovery of the withheld tax. Yet, the government still has to rule in favour of this bill. The date of the ruling has not been set, though.
Dividend withholding exemption
In contrary, a withholding exemption is planned to go into effect on January 1, 2018 for companies in third countries. However, the exemption only applies when the third country has entered into an agreement with the Netherlands that concerns dividend withholding tax. In addition, the residence country of the (physical) body entitled to the profit should meet additional conditions.
In the future, hybrid entities are exempt from withholding tax on their profits as well. It still remains to be seen whether or not hybrid entities settled in third countries will be exempt as well.
In accordance with the anti-abuse ruling, Dutch tax authorities will verify whether corporations obligated to dividend withholding tax do apply the exemption when paying out dividends to the entitled foreign bodies. If that is indeed the case, they will request the corporations to justify their actions within a set timeframe. After this deadline, corporations might face a default penalty, amounting to no less than EUR 5.278.
Furthermore, Rutte III aims to avoid future tax avoidance and abuse by imposing substance requirements on intermediary holdings. They should account for sufficient labor costs and utilize their own office space. When a holding does not meet these conditions, it will be regarded as an artificial construction set up to avoid taxes In the Netherlands. Such artificial constructions and transactions will therefore not be exempt from the dividend withholding tax, as mentioned before.
Value-added tax (sales tax or turnover tax)
The Dutch government now confines the medicines for which it previously lowered the VAT-rate. Starting January 1, this 6%-rate applies solely to those products that meet the marketing authorization or exemptions stipulated in the Pharmaceutical Act.
Joint and several liability
Tax Plan 2018 imposes the joint and several liability on executants and holders of a property of mortgage when they claim VAT for the delivery of a pledged, mortgaged or confiscated businesses.
In the future, the zero-rate for deliveries and supplying applies to vessels navigating on the high seas for at least 90% of their business activities. In addition, the zero-rate will apply to services to such commercial vessels as well. Whether or not that is also the case for vessels which spend no less than 70% of their time on the high seas, remains yet to be seen.
The Tax Plan includes less fortunate news for the agricultural sector. Under the Plan, farmers, foresters and gardeners have to pay VAT over the services and goods they provide. Moreover, the VAT-rate for several products mainly intended for the agriculture will increase. Yet, the Dutch government meets the sector halfway by granting them the right to reclaim (part of) the VAT they spend.
Landfilling and/or incineration of waste
The incineration and landfilling of waste will be levied more severely, no matter where the Dutch waste is managed. Dutch tax authorities will thus levy taxes on export of waste produced in the Netherlands as well. Furthermore, the government proposes to abolish the exemption concerning sewage sludge and biomass plants. It is uncertain, though, when these measures go into effect, since the preparations for their implementation are planned for mid-2018.
A more severe regime is also the case for energy taxes. During the following two years, both businesses and households will be subject to a higher tax rate on natural gas. Electricity, on the other hand, will be met with a lower tax rate in order to promote renewable energy. Second, the government expands the district heating ruling to installations running on biomass and geothermal energy. The third and last adjustment concerns energy-intensive businesses. If their commercial use transgresses the – yet to be determined – threshold, they will be entitled to a refund without having to meet new individual saving agreements.
Taxes on gifts and inheritance
Tax assessment period
Filing taxes on a gift is due after the calendar year in which the gift was done has come to an end. If, however, the taxes are filed no less than four months since the end of that year, the tax assessment period starts the day after filing. Hence, it is wise to declare gifts within the four month period, in order to avoid uncertainty about the tax assessment.
Besides the usual taxes, Dutch tax authorities may also levy a conservational tax assessment on gifts and inheritance from, among others, corporate capital. In addition, to increase different tax assessments, claim assessments might be the case. Lowering such assessments is possible, though, by issuing an objection.
Private cars and motor vehicles
From January 1, the publicly declared price of cars will serve as their listed price on which the addition of cars in wage- and income taxes is based. Furthermore, the specific amortisation scale for private cars and motor vehicles will be abolished for several motor vehicles.
Thirdly, when using a motor vehicle on the road, although prohibited by law, an after-tax will be enforced from the moment you interfered with the law.
Entrepreneurs will still be subject to taxes on delivery vans in case the so called ‘BPM’-exemption expires before the end of 2022. If that is indeed the case, the calculation of the outstanding taxes is similar to the one of used delivery vans.
Tax authorities will define the mass of vehicles in 2018 and onwards in the same way D.M.V. does. Hence, the rate thresholds will be increased by 100 kg.
The government proposes several adaptions to the current calculation of provincial surcharges in order to clarify their application.
Fees and collections
Voluntary disclosure scheme
The voluntary disclosure scheme will no longer be in effect in 2018. That is the case for both direct taxes and surcharges as well as their penal counterparts. For some voluntary corrections, Dutch tax authorities might even issue default or criminal offence penalties. A transitional arrangement will facilitate the adaptation of these new decrees.
The State Secretary must provide third countries with the necessary common Reporting Standard-information. In order to verify this information, the government grants the State Secretary access to Anti-abuse information. In gathering and disseminating this information, all EU members follow the EU-ruling.
As to avoid the improper use of objections to the execution of a warrant, in order to stall paying taxes, the government no longer enables such objections to suspense the warrant or taxes in question.
The disclosure obligation applies to the (potential) requalification of main proceedings concerning tax debts drawing on main proceedings of third parties. This anti-abuse measure aims to cross the IRS’ privilege or jus soli.
Law on registration
In the future, it will be possible to provide a will electronically without a stamp if these wills may already be found in the depository if the Royal Notarial Guild. This facilitates the tax authorities’ access to wills and similar documents.
Authorities of the tax inspector
Besides places relevant to excise tax, the tax inspector will be entitled to search all other grounds, spaces and buildings, except private residences.
Tax on tobacco
Aiming to improve the health of the Netherlands’ population, the government raises the taxes on tobacco starting January 1, 2018