Dutch 2022 budget approved by House of Representatives, moves to Senate

By Jian-Cheng Ku and Rhys Bane, DLA Piper Nederland N.V.

On 11 November, the Dutch House of Representatives voted in favor of the government’s tax proposals for 2022 and onwards. The proposals include several direct tax measures that may be relevant for multinational enterprises.

The tax proposals passed by the Dutch House of Representatives (Tweede Kamer der Staten-Generaal) include a proposal that would limit unilateral downward transfer pricing adjustments, a proposal to implement the last leg of hybrid mismatch rules prescribed by the EU Anti-Tax Avoidance Directive II, and a proposal that would limit the utilization of dividend withholding tax credits. Prior to the vote, the Dutch government withdrew the proposal that would see the tax treatment of employee stock options changed.

This article provides a brief update on the Dutch tax proposals that are part of the Dutch 2022 budget proposals as they currently stand. The authors described the original proposals in this article. 

Changes to 2022 and onwards tax plan proposed by the government

Following the motion of 23 September, in which parliament called on the government to increase spending, the government decided to increase the upper bracket corporate income tax rate from 25% to 25.8%. It also decided to decrease the interest deductibility under the EBITDA rule – an interest deduction rule introduced following the EU Anti-Tax Avoidance Directive I – from 30% to 20% of the taxpayer’s EBITDA (earnings before interest, taxes, depreciation, and amortization).

Withdrawal of employee stock option proposal

The government decided to withdraw the employee stock option proposal, which would change the moment when gains from exercising employee stock options would be taxed. This was done as parliament wanted to narrow the taxpayers eligible for the rules to start-ups and scale-ups. The original proposal would have applied to all taxpayers. The government’s reasoning behind the withdrawal is that if the rules are selective, they must be approved by the European Commission, as they may constitute (fiscal) state aid, which is prohibited under the Treaty on the Functioning of the European Union.

Amendment to unilateral downward transfer pricing adjustment proposal

The proposal put forward that would limit unilateral downward transfer pricing adjustments in cases where there is no corresponding taxable adjustment (corresponding adjustment) was amended on one point. The original proposal did not apply in cases of mergers or demergers. This has been amended following an amendment proposed by an opposition party. The other amendments put forward by that opposition party were rejected by the Dutch House of Representatives.

Amendment to anti-hybrid rules proposal

The proposal implementing the last leg of the EU Anti-Tax Avoidance Directive II was amended on one point. One of the (defunct) government parties proposed two amendments. One amendment was intended to clarify the law to prevent a circumvention of the law in a specific situation and was adopted by the Dutch House of Representatives. The other amendment dealt with overkill (double taxation) in the original implementation legislation and was ultimately withdrawn by the government party due to the fact that the Dutch Ministry of Finance argued against passing the amendment. The Dutch Ministry of Finance has taken and still takes the position that such an amendment would not be consistent with the EU Anti-Tax Avoidance Directive II, contrary to what the European Commission has said on the topic. The European Commission, according to answers to questions from parliament, did take the position that there is room to tackle double taxation caused by the implementation of the EU Anti-Tax Avoidance Directive II.

Our observations

The proposals passed by the Dutch House of Representatives are, in principle, final. The Dutch Senate cannot amend legislative proposals. The Dutch Senate is set to debate the legislative proposals as amended over the course of the next three weeks and is expected to vote on the proposals in mid-December.