Brexit: advantages or disadvantages for the Netherlands?

Brexit has been a hot topic more than once in the last few weeks.  The negotiations over a soft or hard Brexit raise a great deal of questions, also in relation to business here in the Netherlands.


Brexit’s influence on the Stock Exchange 
For the Dutch Stock Exchange, Brexit can turn out to be a good thing.  After all, a recent study carried out by the Financial Markets Authority (AFM) shows a remarkable increase in the number of London stock exchange companies seeking, and being granted, permission to trade here.  It is estimated that approximately 30-40% of the European capital market will move to the Netherlands.  Because of this, the Netherlands, and the Randstad in particular, is well on the way to becoming the centre of the financial trade centre of the reformed Europe. 

The influence of Brexit on the Economy
According to the Financial Times, the central location and the business-friendly climate are the biggest attraction factors in the Netherlands.  Thus, along with leading stock exchange companies such as London Stock Exchange and Chicago Board Options, a number of flash traders and banks have their eye on the Randstad.  Similarly, American, Japanese and British companies trading in “own risk”, or deductibles, are coming to our shores.  The whole Dutch economy can benefit from this positive vibe, because the demand for knowledge-intensive and service-providing companies is also increasing as a result.  More international companies in particular are looking for more capacity, expertise, and IT systems.  

Can the advantages outweigh the risks?
Nevertheless, critics are warning against possible risks, such as an escalation in the increase in the price of property in Amsterdam, for example.  Above all, the possibility of a new economic crisis is making critics nervous.  The question then, precisely, is whether the advantages of the financial sector can offset the costs.         

 

Administrative obligations not fulfilled

Entrepreneurs have administrative obligations. This basically means that they must keep sufficient records of their and their company’s financial situation, from which their rights, obligations and other details important for the purposes of the levying of taxation can at any time be established. Records must be kept for seven years. Supporting documentation also pertains to the records. Administrative details may be saved on a data carrier that is not the original, provided that complete details remain during the retention period and that they can be read within a reasonable period of time. The nature, extent and complexity of a company all determine the requirements imposed on records.

The inspector can, if a decision is open to appeal, establish that an entrepreneur has not fulfilled his administrative obligations. During an audit of an entrepreneur in the catering industry, the Tax Authorities concluded that there were shortcomings in the paperwork. The Tax Authorities established these deficiencies in an information decision. Later, it was found in court that this decision had been justified: the entrepreneur had indeed not fulfilled his administrative obligations. Although a large part of his turnover was received in cash, his cash accounting was not auditable. The entrepreneur had not kept such details as till and debit card receipts and rough drafts.

Such primary documents form an essential part of the records of a company. By not keeping these, it could not be verified if the details had been transferred correctly and fully to the ledger. Thus, the required connection between turnover in cash and goods could not be made. The Tax Authorities found themselves in the position where they were simply unable to verify the accuracy and comprehensiveness of the turnover.

Non-commercially viable guarantee

The provision of assets by a significant interest holder to his private company (bv) falls under the product from other activities in Box 1 of income taxation. Having a claim on the bv is a form of provision of assets. This also applies to recourse against the significant interest holder, which arose when they stood as guarantor for one of the bv’s debts. The obligation to make a payment to a creditor of the bv comes about upon entering into the guarantee and, from that moment, pertains to assets from activities. The difference between the paying of a creditor of the bv and the value of the recourse against the bv is offset against the product of the activities. This is not the case, however, if the guarantee is not commercially-viable.

Regarding the question whether the guarantee is commercially viable or not, it must first be examined if reimbursement, that is not dependent on the profit of the bv, can be fixed, against which an independent third-party would have been willing to stand guarantor.

According to the Court of Arnhem-Leeuwarden it is not important, when considering the commerciality of the guarantee, that the loan to which the guarantee relates has been supplied by a third party. When assessing the commerciality of the guarantee, the court did not take into account the fact that the person providing funds was willing to provide more finance because there was little chance of paying back the earlier loan without it. The court did not find it plausible that an independent third-party, given the negative personal capital and the negative results of the bv, would – for whatever fixed reimbursement – be willing, to stand guarantor without any certainty whatsoever.

Do you have questions about the article? Please contact us for more information. 

Anonymizing assets via limited partnerships

The State Secretary for Finance has recently answered queries in the Dutch Lower House concerning the anonymization of assets by means of limited partnerships (cv). Since the adoption of the fourth anti-money-laundering directive in 2015, the Dutch Tax Authorities are no longer conducting pre-conciliation regarding structures intended to anonymize assets. Since the fourth anti-money-laundering directive has not brought about any change in Dutch legislative and regulatory provisions, rulings issued before that time have not been revoked or amended.

The Code of Commerce requires associations such as general and limited partnerships to function as a business. This obligation is generally fulfilled if there is participation in the course of trade for financial gain in order to obtain income. However, that does not necessarily mean that there is a company for taxation purposes. Certainly, trade in goods normally qualifies as a business for taxation purposes, but the mere possession of shares does not.

If a limited partnership is running a business for taxation purposes, the Supreme Court has determined that a general partner breaching the management prohibition is treated as a managing partner and, along with that, as an entrepreneur for income taxation purposes. The legal form of the limited partnership does not change because of this. If the limited partnership qualifies as an open limited partnership, it is obliged to pay corporate tax. When filing its corporate tax returns, the open limited partnership must deduct the managing partners’ dividends from its profits. This must also be done in the case of the dividend of the limited partner who, because of breaching the management prohibition, is now treated as a managing partner.

The State Secretary cannot rule out continued use of the limited partnership in order to anonymize assets in the future. The Tax Authorities still, on request, issue orders for a fiscally-silent share merger. These anonymization structures have not been set up in order to pay less income taxation or to put assets out of the grasp of the Tax Authorities. Thus, there is no reason not to put such structures in place.

 

Please feel free to contact us for more information. 

Highly Skilled Migrants 2019: New salary thresholds applicable for Highly Skilled Migrants and Blue Card holders in 2019

The new 2019 salary thresholds for foreign employees- e.g. Highly Skilled Migrants, Graduates, Blue Card holders- have been announced.

These amounts are applicable for new applications for local hires, assignees (when outside the scope of the EU ICT Directive 2014/66/EU) or extension applications, received by the Immigration Authorities (IND) on or after 1 January 2019:

  • The monthly gross salary threshold for applicants of 30 years and older is currently set at € 4.404 excluding holiday allowance, and will be indexed to € 4.500;
  •  The monthly gross salary threshold for applicants younger than 30 years is currently set at € 3.229 excluding holiday allowance, and will be indexed to € 3299;
  • The monthly gross salary threshold for graduates from a higher Dutch educational institution, or from an international educational institution listed in the top 200 of one of the ranking lists, taking up employment within three years after graduation is currently set at € 2314  excluding holiday allowance, and will be indexed to € 2.364;
  • The monthly gross salary threshold for Blue Card applications is currently set at € 5.160 excluding holiday allowance, and will be indexed to € 5.272.

 

As a reminder, all amounts are calculated on a monthly gross basis, excluding holiday allowance, and will need to be received directly on the bank account of the individual. Allowances/benefits can only be included provided that the following cumulative requirements are met: specified, fixed/ guaranteed, paid structural on a monthly basis in money (not in kind)

This blog was written by DBi-member Dominique Coenen of Expat Management Group.

Please feel free to contact the EMG team in case of questions or comments in this respect.

Debate of fiscal unity emergency repairs bill

In a letter to the Lower House, the State Secretary for Finance writes that debating of the fiscal unity emergency repairs bill will have been completed in the first quarter of 2019.  The reason for this is the retrospective force incorporated in the bill up to and including January 1, 2018.  Timely debate of the bill must prevent thattax payers must file their 2018 corporate tax returns prior to completion of the legislative process. 

In his letter, the State Secretary points to the complexity of the legislation for fiscal unity.  Due to provisions contained in the bill, the legislation has become even more complicated.  The debate in the Lower House has been delayed by rulings in the two cases which led to the presentation of this bill.    

In the meantime, we will keep you up-to-date.  Have you further queries regarding emergency repairs or debating of fiscal unities?  If so,get in touch with us.          

Conversion of a negative capital account into debt

The Supreme Court has quashed a judgement made by Den Bosch Court regarding the implications of the conversion of negative capital account in a general partnership into debt owed by the partner to the general partnership.

The general partnership was composed of a married couple and the husband’s father. Upon leaving the general partnership, the father’s negative capital account was converted into debt of 116,603 EUR.In 2011, the father had paid off part of his debt with the proceeds of the sale of his private residence. The remaining debt of 60,555 EUR was irrecoverable and was written off against profits of 2011. The Court in Den Bosch did not allow this, as there was evidence of a non-commercially viable loan. By providing the father with the loan, the remaining partners took the risk of default that an independent third party would not have taken. According to the Court, that very risk was accepted due to the family relationship. 

The Supreme Court assumed, in appeal, that the mutual legal relationships between the partners in the general partnership were founded on commercial grounds. The claim on an outgoing partner due to the discharge of his negative capital account is a direct consequence of the partnership relationships. This claim cannot be compared to a loan to an outgoing partner. The loss of capital on a deficient claim on the outgoing partner has not been caused by accepting an uncommercial risk. As long as the nominal value of the claim, when it came into existence, is higher than the value in the course of trade, the loss on the claim is borne by the profits of the remaining partners. That does not apply for a possible further loss on the claim subsequent to leaving the partnership. In relation to that loss, there can certainly be evidence of a loss on a non-commercial loan.

Arnhem-Leeuwarden Court must deal with the case further. Feel free to contact us for more information. 

Saving on VAT as of January 2019: issue and/or pay your invoice today

The increase in the lowered VAT rate from 6% to 9% as of January 1,2019 may lead to queries regarding deliveries and services carried out just before that date.  You will find a little more clarity on this issue in the Note in response to the Tax Plan 2019 report.  

Goods and services currently under the lowered VAT rate of 6% (tool), will, as of January 1, 2019, be subject to a rate of 9%.  The Note in response to the Tax Plan 2019 provides extra information in order to determine which rate is applicable around January 1.  Here a distinction has been made between entrepreneurs applying the VAT cash accounting and invoice schemes respectively.

Entrepreneurs applying the cash accounting scheme
For entrepreneurs using the cash accounting scheme, the moment that they receive payment determines the tariff that they must apply.  The rate of 6% may thus be used if an invoice is issued, and payment is received, in 2018.  If an entrepreneur receives payment in 2019 (but the invoice is from 2018), he must then use the 9% rate. 

Entrepreneurs using the invoice scheme
Those using the invoice scheme must assess whether the recipient is an entrepreneur/legal entity or an individual.  An invoice must be issued for deliveries and services to another entrepreneur.  The date of issue of this invoice is decisive.  If the invoice for a delivery or service is issued while still in 2018, a VAT rate of 6% may be imposed on this.  For a delivery made in December 2018, but for which an invoice is only issued in January 2019, the entrepreneur must use the 9% rate.  In order to be sure of being able to charge 6%, an entrepreneur that uses the invoice scheme will thus, for services still in 2018, have to issue the invoice this year.  On invoices that have been drawn up for deliveries and services that have taken place before December 1, 2018, the entrepreneur will, in any case, have to impose the 6% rate. 

Deliveries to individuals
For deliveries and services to individuals, the time oftransaction is decisive for the application of the rate.  Forexample:  an entrepreneur provides an individual with a product on December 11, 2018.  She receives the invoice on January 6, 2019.  The entrepreneur must charge 6% VAT on the invoice.    

 

Please feel free to contact us for more information.

 

Overview of the adopted motions Tax Plan 2019

September 18th,  The Dutch Government proposed Tax Plan 2019, in which they make their bills to adjust the current fiscal legislation known. 

In November 2018, The Lower Chamber adopted a number of motions during voting on the Tax Plan 2019 package. These involve making the following requests of the government:

  • To safeguard both the possibility for small entrepreneurs/natural persons of filing annual sales returns and partnerships between natural persons;
  • To draw up a proposal to, as a rule, keep sun panels outside the levying of property tax;
  • To monitor and evaluate the impact of the provisions of the ATAD 1 law;
  • To safeguard the registration requirement in motor vehicle taxation and to identify and fine late payers driving in vehicles with a foreign registration plate;
  • To clearly indicate in the payroll taxation manual the option available to children whose parents are workers of benefitting from a student loan;
  • To monitor that there is sufficient supply of highly economical and emission-free vehicles for healthcare and target group transport;
  • With effect from next year, to spread bills as much as possible over the whole year;
  • To have a follow-up investigation carried out into tax constructions and, where possible, to carry out baseline measurements;    
  • To identify the number of people with personal injury awards and the financial implications coming with a personal injury claim exemption in Box 3.  

Enforcement Plan Labour Relations

Since its introduction, the Deregulations Labour Relations Assessment Law (Wet Deregulering Beoordeling Arbeidsrelaties or DBA law) has caused nothing but trouble. The Dutch Tax Authorities recently publicised a plan of approach for the enforcement of the law. The Enforcement Plan Labour Relations (Toezichtsplan Arbeidsrelaties), as it is called, was presented to show how the Tax Authorities will approach the enforcement of the DBA law. It states that around 100 assignment providers will be visited for an audit, classed as a friendly conversation with a business relation while just drinking some coffee. The assignment provider will probably then be interviewed about labour relations and the way things work out on a daily basis.

Aims
The approach of the Tax Authorities seems to have two major aims. The first one is to get more insight into the practical experiences, which can be used to improve the legislation in this area. Secondly, they aim to monitor the assignment providers and possibly enforce the DBA law by use of the criterion that an assignment provider maliciously violated the law. This may have some serious repercussions, because the Tax Authorities can impose a fine and also start a criminal prosecution.

Enforcement Requirements
If facts and circumstances lead to the presumption that there are a (fictional) employment and malice, the Tax Authorities will further investigate, which may lead to enforcement. According to the Enforcement Plan, the tax inspector will enforce the law if the following requirements are met:
(1) There is a (fictional) employment;
(2) There is obvious false self-employment;
(3) The false self-employment is maliciously existing.

(Fictional) Employment
In order to assess whether there is a (fictional) employment, two key elements will be investigated. The first one is the agreement between the assignment provider and the contractor. The second one is the way the agreement has been shaped into the actual working activities. A good example of the difficulty of determining the existence of an authority ratio is the Amsterdam Court’s judgment. Based on the text of the agreement and the actual working activities, the judge concluded that a deliverer from the food delivery company Deliveroo did not have a labour agreement and that there was no authority ratio.

Sef-employment
Furthermore, the tax inspector must prove that there is obvious false self-employment. Up until now, there has not been an explanation of this formula. Hence, it has to be determined by the grammatical meaning. Since “obvious” entails that something is very clear, it should thus be really clear that the self-employment is not what it is made out to be.

Malicious Act
Last but not least, the tax inspector must prove that the false practice was a malicious act by the assignment provider to benefit from lower tax and insurance costs. The Dutch Minister of Social Affairs and Employment Opportunities has given a definition of the word malicious in this context. “Malicious is the assignment provider or contractor who deliberately creates or lets continue a situation of obvious false self-employment, because he knows – or should have known – that there is actually a factual situation of employment (and with that improperly benefits financially and/or unfairly affects the playing field).”

The definition creates some uncertainties, because the word “intentionally” is used in the Enforcement Plan, while “should have known” serves as a sufficient condition for prosecution according to the Minister. “Intention” does, however, require that someone actually knew about it. Therefore, it is difficult to know whether “should have known” is indeed sufficient to assume that something was intentional. The most logical explanation would be that the standard requirements for the term “intention” apply in such situations. Analogically seen, “intention” thus requires one of the party’s to have known about the illegality of the situation, but decided not to take action.
The reasons for the government interfering in these employment relations between assignment providers and contractors are simple, as such assignments generate less revenue from taxable income and the contractors are not insured to the same standards. In my opinion, the second reason should be the government’s main focus, because it is of more importance than the amount of money that our government receives by taxation.

The same matter applies to all the requirements for enforcing the DBA law. They all depend on the factual situation at that moment and time. With the new approach of the Tax Authorities, the government hopes to easily collect evidence to build a stronger case for imposing a fine or starting a criminal prosecution. They try to get the facts handed to them in a seemingly innocent manner, by visiting you for a simple conversation. When you find yourself in such a situation, it is thus of the utmost importance that you choose your answers wisely and do not speak impulsively. This is not only to your benefit in order to avoid involuntary cooperating in your own conviction. You might as well give information to the Tax Authorities that is incorrect which might increase the chance of being falsely convicted. The Tax Authorities and the tax inspector might not tell you, but rest assured everything you say can and will be used against you.

Yet, there is a glimmer of hope. According to the Dutch Supreme Court, evidence that depends on the will of a natural person and was acquired against the will of a suspect, may only be used by the Tax Authorities in order to impose taxes. Analogically, this evidence depending on the will of a natural person cannot be used to support the imposition of a fine or to support a criminal prosecution charge. In short: words can’t hurt you, since they do not lead to a fine or criminal prosecution if there is no other evidence.

 

This blog was written by Ahmed Houçine of DTS Duijn’s Tax Solutions.

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[1]  Rb. Amsterdam 23 juli 2018, ECLI:NL:RBAMS:2018:5183,JAR 2018/189, m.nt. Wiewel & van Slooten.
[2]  Kamerstukken II2016/17, 34 036, nr. 44.
[3]  HR 12 juli 2013, ECLI:NL:HR:2013:BZ3640,NJ 2014/35, r.o. 3.8.