2017 was a year of significant change for Dutch tax law and international tax law. Among other things, in 2017, the Dutch innovation box regime became stricter; an important multilateral tax treaty was signed by the Dutch government; and the 2018 Dutch Budget, containing a number of important changes to the dividend withholding tax and corporate income tax, was passed by the House of Representatives and the Senate.
Even more changes are predicted for 2018, given the new Dutch government’s announced plans for tax reform and other initiatives in the pipeline.
On June 7, 2017, over 70 countries, including the Netherlands, signed the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (Multilateral Instrument or MLI).
The MLI will modify bilateral tax treaties concluded by the Netherlands insofar as both the Netherlands and the other party to the treaty are MLI signatories and have made ‘matching’ choices with respect to the MLI.
The Netherlands has chosen to implement the MLI’s principle purpose test, which denies tax treaty benefits, such as lower dividend withholding tax rates, if the corporate structure can be considered artificial and contrary to the aim and purpose of the tax treaty, in general, or to the specific provision granting the treaty benefits.
The Netherlands also chose to implement the MLI’s expanded definition of a permanent establishment in its bilateral tax treaties.
Further, the Netherlands is one of 27 jurisdictions that have chosen to implement mandatory binding arbitration through the MLI, which will provide taxpayers with more legal protection from double taxation.
The MLI will likely become effective as of 2019; however, for it to apply to a bilateral tax treaty, both treaty partners must ratify the MLI.
The Netherlands is expected to ratify the MLI in 2018; a ratification proposal was submitted to the Dutch House of Representatives on December 19, 2017.
Anti-Tax Avoidance Directive
On July 10, 2017, the former Dutch government published its proposed implementation of the EU Anti-Tax Avoidance Directive (ATAD) for public consultation. We expect the final proposal to be published in the spring of 2018.
The new Dutch 2017-2021 government coalition agreement provides more insight into the final proposal. Under the agreement, the earnings stripping provision will contain no group escape and will have a low threshold amount of only EUR 1M.
It is not yet known whether the Netherlands will choose the income-based approach or the arm’s length approach for the controlled foreign company (CFC) rules (even though the proposal published July 10 contains the income-based approach), due to the fact that implementing the income-based CFC rule would require more modifications to Dutch income tax laws than the arm’s length approach.
State Aid case
In another key development, the European Commission, on December 18, 2017, announced it has opened an in-depth investigation into the tax treatment of Inter IKEA Systems in the Netherlands.
The European Commission states in their press release that they will investigate two tax rulings concluded between the Netherlands and Inter Ikea Systems.
The innovation box regime was changed as of January 1, 2017 to further align it with OECD/G20 base erosion profit shifting (BEPS) Action 5 recommendations.
In practice, this means that more requirements must be met by so-called ‘large taxpayers’ (taxpayers with an income from IP of EUR 37,5M or more, or taxpayers with a consolidated group turnover of EUR 250M or more) to be eligible for the innovation box.
Dutch fiscal unity case
On October 25, 2017, Advocate General of the Court of Justice of the European Union Campos Sanchéz-Bordona delivered his opinion in the joined cases X BV (Case C-398/16) and X NV (Case C-399/16), that the Dutch tax consolidation regime violates EU concepts of freedom of establishment and is thus contrary to EU law.
The Advocate General reasoned that the so-called per-element approach should be applied to the Dutch fiscal consolidation regime.
For a more in-depth analysis of the AG’s conclusion, please refer to our article of November 7, 2017.
Another key event this past year was the publication, on September 19, 2017, of the 2018 Budget proposal the Dutch government.
The most important changes included in the 2018 Budget are:
- Modifications to the Dutch dividend withholding tax which would introduce a withholding tax obligation for so-called ‘holding cooperatives,’ expansion of the withholding tax exemption, and changes to the scope of the non-resident corporate income tax rules for substantial shareholdings Dutch companies. (Please refer to our Global Tax Alert of September 25, 2017.)
- Tightening of conditions to deduct interest on intercompany debts funded by connected loans from third parties (which can also be found in our Global Tax Alert of September 25, 2017).
- Tightening of the liquidation loss regulations by introducing additional anti-abuse rules.
- Abolishment of the REIT regime.
Dutch 2017-2021 government’s plans
The new Dutch government, a coalition between liberals and Christian democrats, was sworn in on October 26, 2017.
The coalition agreement provides insight into measures that will be proposed during this government’s term. These measures include:
- Repealing the expansion of the bracket to which the lower corporate income tax rate applies (the government modified the 2018 Budget and has therefore already implemented this).
- Publishing the final ATAD implementation proposal with the strict earnings stripping rule (expected in the spring of 2018).
- Shortening the loss carry-forward period from 9 years to 6 years (expected in the 2019 Budget).
- Increasing the effective tax rate of the innovation box from 5% to 7% (the government modified the 2018 Budget and has therefore already implemented this).
- Lower the corporate income tax rate to 16% (lower rate) and 21% (higher rate) in steps (2019: 1%; 2020: 1.5%; 2021: 1.5%) (expected in the 2019 Budget) — please refer to the table below.
- Abolish the dividend withholding tax and introduce a withholding tax on dividends, interest, and royalties paid to low tax jurisdictions (expected in the 2019 Budget).
- Shorten the 30% facility for incoming employees from 7 years to 5 years (expected in the 2019 Budget).
The proposal to abolish the dividend withholding tax and introduce a withholding tax on dividends, interest and royalties to low tax jurisdictions has met some resistance in parliament and the media; however, the government seems determined to proceed with this plan.
The State Secretary of Finance noted, in his memorandum of reply to the Senate that the withholding tax on dividends, interest, and royalties to low tax jurisdictions will only be introduced if and when the current dividend withholding tax is abolished.
As noted above, the corporate income tax rate will be lowered to 16% (bracket I) and 21% (bracket II) from 2019 to 2021.
The table below shows the applicable corporate income tax rates by year.
|Year||Rate applicable to bracket I (EUR 0 – EUR 200k)||Rate applicable to bracket II (EUR 200k+)|
–-Jian-Cheng Ku is a Tax Adviser with DLA Piper Amsterdam. He advises on international tax law and transfer pricing with a particular focus on international tax planning, M&A and private equity transactions, corporate reorganisations, and planning and design of transfer pricing policies.
–Tim Mulder is a Tax Adviser with DLA Piper Amsterdam. Tim advises on Dutch and international tax aspects relating to international tax planning, M&A transactions, corporate restructurings, private equity and investment fund transactions.
–Rhys Bane is a Legal Assistant with DLA Piper Amsterdam. Rhys currently studies Tax Law at Leiden University, where he is a teaching assistant for international tax law. His focus lies on international tax planning, M&A, corporate restructurings and tax policy & legislation.