The 2020 Dutch budget and tax plan: key takeaways for multinational enterprises

By Jian-Cheng Ku & Rhys Bane, DLA Piper, Amsterdam

The Dutch government on September 17 presented the 2020 Dutch budget and tax plan, proposing modifications to the taxation of multinational firms.

The proposal aims to increase the perceived fairness of the Dutch corporate income tax system, whilst still keeping the Netherlands attractive as a place to do business.

The key proposals for multinational enterprises are the introduction of a conditional withholding tax on interest and royalties, amendments to the Dutch corporate income tax and dividend withholding tax anti-abuse rules, and an announced amendment of the liquidation loss regime. 

Conditional withholding tax on interest and royalties

As anticipated, the Dutch government has announced its legislative proposal for a conditional withholding tax on intercompany interest and royalties (where there is a qualifying interest, which is assumed to be a shareholding of more than 50%), payable to low tax jurisdictions or in certain abusive situations.

The tax rate of this conditional withholding tax is expected to be the upper corporate income tax rate (expected to be 21.7% in 2021).

The Dutch government compiles a list of low tax jurisdictions annually, which is based on the EU list of non-cooperative jurisdictions and the applicable statutory corporate income tax rates in jurisdictions (any jurisdiction with a statutory rate of less than 9% is included on the list).

The aforementioned list already exists for Dutch controlled foreign company rules and includes: American Samoa, American Virgin Islands, Anguilla, Bahamas, Bahrain, Belize, Bermuda, British Virgin Islands, Cayman Islands, Guam, Guernsey, Isle of Man, Jersey, Kuwait, Qatar, Samoa, Saudi Arabia, Trinidad and Tobago, Turks and Caicos Islands, United Arab Emirates, and Vanuatu.

There is an exception for jurisdictions with which the Netherlands has a tax treaty.

At the moment, if the jurisdiction is listed as a low tax jurisdiction for the purposes of the conditional withholding tax, there is a three year grace period for the application of the conditional withholding tax. This grace period is intended as a period in which the tax treaty can be renegotiated for the Netherlands to be able to effectuate the conditional withholding tax.

This means that the conditional withholding tax will only apply as of January 1, 2024, for any jurisdiction listed as of January 1, 2021, with which the Netherlands has a tax treaty, assuming that the tax treaty remains in force and cannot be renegotiated.

The abusive situations described in the legislative proposal are:

• Situations where the interest or royalty is paid directly to a non-low tax jurisdiction but then on-paid to a low tax jurisdiction where the direct recipient of the payment is interposed to avoid the withholding tax and the structure is artificial;
• Situations where the interest or royalty is paid to a non-low tax jurisdiction entity, but the income is attributable to a permanent establishment in a low tax jurisdiction;
• Situations involving hybrid entities; and
• Situations involving reverse hybrid entities.

The expected effective date of this proposal is January 1, 2021.

Amendments to anti-abuse rules

Following the Danish beneficial ownership cases decided by the European Court of Justice on February 26, 2019, the Dutch government has proposed amendments to the anti-abuse rules in the corporate income tax and dividend withholding tax anti-abuse rules to align these anti-abuse rules with EU law.

The proposed amended anti-abuse rules will apply to the Dutch corporate income tax non-resident taxation rules, the so-called ‘significant economic activities’ escape for Dutch controlled foreign company rules and the Dutch domestic dividend withholding tax exemption.

Under these amended rules, if the taxpayer meets certain requirements (which will be published in a ministerial regulation), the anti-abuse provisions do not apply, unless the Dutch tax authorities can successfully argue that the main purpose or one of the main purposes of the structure is avoiding taxation and the structure is artificial.

If a taxpayer does not meet the requirements set out in the aforementioned ministerial regulation, the anti-abuse rule does not apply if the taxpayer can plausibly argue that the main purpose or one of the main purposes of the structure is not avoiding taxation or the structure is not artificial.

This shift in the burden of proof introduced by the Dutch government is also necessary from an EU law perspective, as the existing Dutch anti-abuse rules are arguably not in line with EU law.

Under the current anti-abuse rules, using the words of the European Court of Justice, the anti-abuse rule could be considered “a general tax measure automatically excluding certain categories of taxable persons from the tax advantage, without the tax authorities being required to provide even prima facie evidence of fraud and abuse”.

The amended anti-abuse rule will also be used to determine whether a situation is considered abusive for conditional withholding tax purposes (as described in the first situation above).

Liquidation loss regime

The Dutch government has announced it will endorse the proposal of left-wing opposition parties to introduce certain substantive, geographic, and temporal restrictions to the application of the liquidation loss regime (liquidatieverliesregeling) and the discontinuation loss regime (stakingsverliesregeling).

Under the liquidation loss regime, a Dutch taxpayer can take a loss into account if it liquidates a (foreign) subsidiary where, roughly speaking, the sacrificed amount (share capital, share premium, and other contributions into the subsidiary) exceeds the liquidation proceeds.

The proposed amendment to the liquidation loss regime will mean that a liquidation loss can only be taken into account if a shareholding threshold is met, the subsidiary being liquidated is a resident for tax purposes of an EU/EEA jurisdiction; and the liquidation is completed within three years.

The expected effective date of this proposal is January 1, 2021.

Additional changes relevant to MNEs

In addition to the above, there are a couple of minor changes relevant to multinational enterprises that do business in the Netherlands.

First, the Dutch government has announced it will increase the discretionary margin for the work-related costs scheme (werkkostenregeling).

Under the work-related costs scheme, employers could reimburse their employees free from Dutch wage tax for up to 1.2% of the total wage sum of the employer. The Dutch government has proposed to increase this cap from 1.2 to 1.7% for the first EUR 400,000 in wage sum.

Second, the Dutch government has announced it will change the effective tax rate on income attributable to the Dutch innovation box regime to 9%.

Lastly, the Dutch government has proposed the corporate income tax rates included in the table below for 2020 and 2021.

Year	Tax rate for taxable profits ≤ EUR 200,000	Tax rate for taxable profits > EUR 200,000
2019	19%	25%
2020	16.5%	25%
2021	15%	21.7%