On 17 September 2019, the Dutch Government published the 2020 budget proposals, which includes the Tax Plan for 2020. The 2020 Tax Plan package consists of the following six bills:
- the 2020 Tax Plan Bill;
- the Other 2020 Tax Measures Bill;
- the National Climate Agreement (Tax Measures) Bill;
- the 2021 Withholding Tax Bill;
- the Training Expenses Tax Deduction (Abolition) Bill; and
- the Bill implementing the Directive regarding the harmonization and simplification of trade between member states.
Two other bills were presented to the House separately in the summer (ATAD22 and DAC63) with a final implementation date of 1 January 2020. These bills are not part of the 2020 Tax Plan.
1. 2020 Tax Plan Bill
Income and corporation tax measures: The two-bracket system will now be introduced in 2020 instead of in 2021 as originally planned. The employment tax credit and the general tax credit will be increased further. The increase in the general tax credit will benefit lower incomes.
The higher rate of corporation tax, for example, will not be lowered in 2020 as originally intended. Furthermore, the government proposes to reduce the higher rate of corporation tax by 1.2 percentage points less on a structural basis than proposed in the Business Act 2019. The higher rate of corporation tax will therefore remain at 25% in 2020 and will be lowered to 21.7% on 1 January 2021. The CIT rate for the first €200,000 shall – in line with the 2019 Budget Plan – be gradually reduced to 16.5% in 2020 and to 15% in 2021.
Thin capitalization rule: It is proposed to limit interest deductions for banks and insurers in case, in short, the loan capital exceeds more than 92% of the total assets. In other words, banks and insurers are under the proposed legislation required to have a minimum level of equity capital in place of 8% to stay out of scope of the proposed interest deduction limitation rule. The equity ratio is determined on 31 December of the preceding book year of the taxpayer. In this respect it should be noted that the interest limitation is based on the leverage ratio as included in regulatory guidelines (e.g. Regulation (EU) no 575/2013 of the European parliament and of the council of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation, (EU) No 648/2012). The proposal largely follows a public online consultation that took place earlier this year.
CFC rules: Under the Dutch CFC rules, a subsidiary or PE in a low-taxed jurisdiction or country put on the EU list of non-cooperative jurisdictions shall not be considered a CFC if it performs substantive economic activities. This should for example be the case if specific substance requirements are met. For financial years starting on or after 1 January 2020, meeting these substance requirements shall no longer function as a safe harbor, but rather as a presumption of proof of substantive economic activities.
Definition PE and Permanent Representative: It is proposed that the domestic definition of PE and permanent representative shall be aligned with the respective bilateral tax treaty. It is important to note that the Netherlands made a reservation to Article 12 of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI) that targets the artificial avoidance of PEs through commissionaire arrangements. If no tax treaty applies, a domestic PE and permanent representative definition is proposed in line with the OECD’s MLI definition combating the artificial avoidance of a PE or permanent representative.
Penalties for late return: The corporation tax return must generally be filed on the first day of the sixth month following the calendar or fiscal year. Late submission incur an 8% penalty. Presently, for companies following the calendar year, such interest may already be charged if a tax return is filed after 1 April. According to the proposal, the Dutch tax authorities no longer pay interest on tax if the CIT notification is submitted before 1 June of a calendar year. Furthermore, no payment reduction will be granted for payments on preliminary CIT assessments.
VAT on electronic newspapers and books: The VAT payable on electronic newspapers, magazines and books will be lowered from 21% to 9%. There will then be no difference in the VAT charged on the paper and electronic versions. The same rate will also apply to all news websites, even if they do not have physical products.
2. Other 2020 Tax Measures Bill
The Other 2020 Tax Measures Bill will enable the Tax and Customs Administration to publicly announce the fines for culpable negligence it imposes on professionals who facilitate tax evasion or benefit fraud. To implement the coalition agreement, an option scheme for electronic messaging with the Tax and Customs Administration is proposed. This will enable taxpayers and benefit claimants to decide how they communicate with the Tax and Customs Administration: on paper or digitally. The bill also includes a proposal to implement the new Worldwide Harmonised Light Vehicle Test Procedure in respect of car-related taxes.
3. National Climate Agreement (Tax Measures) Bill
The Dutch government’s aim is to reduce greenhouse gas emissions in the Netherlands by 49% by 2030. This greening will be achieved in part by means of the National Climate Agreement (Tax Measures) Bill. It includes tax measures in the field of mobility, the built environment and waste. In 2020 the budget available for the environmental investment tax credit will be increased by €10 million to encourage the use of circular assets that reduce CO2 emissions.
4. 2021 Withholding Tax Bill
The 2021 Withholding Tax Bill introduces a conditional withholding tax as of 2021 on interest and royalty payments to low-tax jurisdictions and in misuse situations.
Under the proposed rules, interest and royalty payments to a related company will become subject to 21.7% withholding tax if said related company is established in a specifically listed low-tax jurisdiction (i) with no tax or a tax rate that is lower than 9%, or (ii) which is included in the EU Blacklist for non-cooperative jurisdictions, or in the case of a structure that is considered abuse. To confirm what jurisdictions should be considered low-taxed or non-cooperative, the Ministry of Finance will maintain a limitative list of specific low tax jurisdictions (as it already does for the application of the CFC regime introduced per 2019) and update this list annually.
5. Training Expenses Tax Deduction (Abolition) Bill
This bill replaces the tax deduction available for training expenses with a grant scheme that provides a learning and development budget to improve the position of individuals with ties to the Dutch labor market. The Minister of Social Affairs and Employment will send the draft scheme to the House soon. The aim is to make more efficient and effective use of the funds budgeted for training.
6. Bill implementing the Directive regarding the harmonization and simplification of trade between member states
This bill contains the amendments (quick fixes) necessary to implement the Directive regarding the harmonization and simplification of trade between member states in Dutch law.
