Netherlands: Doing Business In Or Via The Netherlands: Changes To Dutch Tax Law As Of January 1, 2012

Last Updated: 1 February 2012
Article by Nico Blom and Chris Warner

(Originally published on January 18, 2012)

On 20 December 2011, the Dutch Senate has adopted the Tax Bill 2012. The maximum corporate income tax rate remains 25% and the participation exemption regime remains unchanged. Below please find a short summary of the most important changes that enter into force on 1 January 2012:

  • Restrictions on deductibility of interest on acquisition debt
    The Tax Bill 2012 introduces a new restriction on deductions for interest in respect of debt raised in connection with the acquisition of, or increase of an interest in, a Dutch target company that is included in a fiscal unity with the acquisition company. Pursuant to this new restriction, interest on acquisition debt can no longer be offset against the Dutch target company's taxable profits to the extend (i) the acquisition debt exceeds 60% of the purchase price in the year of the acquisition and (ii) the amount of interest expenses exceeds EUR 1 million. The maximum percentage of 60% will be reduced by 5% every year following the acquisition, down to 25% in year 8 and later years. If the assets of the Dutch target company are transferred to the acquisition company under a legal merger, demerger or liquidation the same restriction applies.
  • Dividend withholding tax for cooperatives in abusive structures
    An anti-abuse provision is introduced that targets distributions made by certain Dutch cooperatives. The general rule remains that distributions by a Dutch cooperative are not subject to Dutch dividend withholding tax. However, this will no longer apply to structures that are considered abusive. Structures that meet the following conditions will generally be considered abusive: (i) a cooperative that, directly or indirectly, holds shares in another entity with the main purpose (or one of the main purposes) of avoiding dividend withholding tax or foreign tax of another entity whilst the membership in the cooperative is not considered a business asset at the level of the member, or (ii) the membership in the cooperative is considered a business asset and the cooperative is or was interposed in a structure to avoid triggering a deferred Dutch dividend withholding tax claim.

    The vast majority of the cooperative structures will not be considered as abusive and consequently these cooperative structures will not be affected by this new legislation.
  • Limitation of non-resident taxation of foreign substantial interest holders
    Currently, a foreign entity with a substantial interest (generally 5% or more) in a Dutch entity will be subject to Dutch corporate income tax on benefits derived from such interest, to the extent (i) the substantial interest does not form part of the assets of an enterprise, and (ii) such foreign entity is not protected against the levy of Dutch corporate income tax under a tax treaty. Under the new legislation, Dutch corporate income tax will only become due if conditions (i) and (ii) are met, and in addition (iii) the foreign entity holds the substantial interest in the Dutch entity with the main purpose (or one of the main purposes) to avoid Dutch dividend withholding tax or income tax of another person.

    Please note in this context that an entity incorporated under Dutch law with a substantial interest in another Dutch entity will be treated as a foreign substantial interest holder if the entity has no real economic and physical substance in the Netherlands. This means that a Dutch entity holding a substantial interest in another Dutch entity passively will, in the absence of duty protection, be subject to Dutch corporate income tax on dividends and capital gains, since it cannot apply the participation exemption. Therefore, the active and passive determination and substance requirements will now have more relevance for Dutch tax purposes.
  • Object exemption for foreign permanent establishments
    Currently, losses incurred through a permanent establishment outside the Netherlands may be offset against the profits of the Dutch entity. Under the new legislation, profits and losses from a foreign permanent establishment will be exempt from Dutch tax. As a result, losses from a foreign permanent establishment are no longer deductible from the Dutch tax base. These losses remain, however, deductible if (i) the Dutch entity liquidates the foreign permanent establishment, (ii) the activities are not continued within the group, and (iii) the losses cannot be compensated elsewhere. A recapture rule applies if the Dutch entity starts up new activities in the same foreign jurisdiction within a period of three years after liquidation.
  • 30% facility
    The 30% facility, which provides a substantial personal income tax exemption (up to 30%), will be tightened, amongst others: the minimum salary required to meet the specific expertise condition is set at EUR 35.000 or more (excl. allowance), the employee must be recruited from at least 150 km outside the Netherlands and the exemption applies for a period up to eight years instead of ten years.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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