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Dutch tax plan 2012
The Dutch government presents its annual budget, including its tax plan, traditionally on the 3rd Tuesday of September. This year the content of the tax plan 2012 has however been published on 15 September. The tax plan includes significant changes for corporate tax payers, including changes to the rules on the deductibility of interest, anti-abuse rules for foreign taxpayers and the treatment of foreign permanent establishments. These proposals need to be approved by Dutch parliament and may be subject to change. Taxand Netherlands takes a look at the proposals of the budget.
A new rule has been proposed with regard to interest deduction at Dutch leveraged acquisition structures. Under a typical Dutch debt-push down structure, a Dutch vehicle acquires a profitable target company, after which both entities are included in a fiscal unity. As a result, the interest may be offset against the operating income of the target. In order to discourage such debt-push down structuring, it is proposed that the interest in leveraged acquisition structures cannot be offset against the target's profits insofar as the acquisition vehicle's interest costs exceed the acquisition vehicle's profit on stand-alone basis ("tainted interest"). The limitation only applies as follows:
- the tainted interest exceeds EUR 1,000,000; or
- the debt:equity ratio of the fiscal unity exceeds a 2:1 ratio (i.e. 66.6% debt and 33.3% equity).
It was expected that the new rule would be applicable to acquisitions as of 2007 but it has now been announced that the rule will only apply to acquisitions as of 1 January 2012. In addition a new restriction on interest deduction in relation to interest on debt to acquire foreign subsidiaries was expected. This potential new rule has not been included in these proposals but it is expected that a separate proposal will follow later this year.
Treatment of permanent establishments
Under the current regime, permanent establishment ("PE") losses immediately reduce the Dutch head office's corporate tax liability. Under the proposed regime, foreign PE profits and losses are completely excluded from the Dutch tax base. Consequently, the import of foreign PE losses ceases to be available.
The tax plan includes changes to the rules for foreign shareholders (non-resident taxation). The proposed changes makes it more explicit that these rules are aimed at a limited number of abusive structures. The changes are, in general, a codification of current practice/policy of the Dutch tax authorities and therefore should not impact current or future structures provided that they were/are structured properly. Coop entities will continue to be exempt from levying Dutch dividend withholding tax but may become subject to dividend withholding tax in limited abusive structures. Please note that there is no difference intended between current practice/policy of the Dutch tax authorities and this new rule. The new rule should only apply to a very limited number of passive investment structures with no or limited substance.
Other corporate tax news
A number of other important changes are included in the proposals such as the introduction of a bank tax, an additional deduction for R&D costs, a refund of dividend withholding tax for foreign tax exempt portfolio investors and a reduction of the number of "smaller" taxes.
Wage tax and employment law
A number of limitations is proposed for the application of the 30%-ruling. The funds for R&D-wage tax reduction will however be expanded. Moreover a possibility for wage tax reduction is proposed for employees studying abroad.
Taxand Netherlands believes that it is unfortunate that the Ministry of Finance has not proposed a more thorough overhaul of the tax treatment of equity and debt. The current interest deduction rules are a patchwork of rules which are much too complicated. The introduction of this new rule will make it even more difficult to determine whether a company is able to claim an interest deduction.
An attractive consequence of the current treatment of foreign permanent establishments is that foreign PE losses immediately reduce the Dutch corporate tax liability. In general this is a timing benefit as a recapture rule applies. The Ministry of Finance has chosen to propose a completely new system which exempts profits and losses from foreign permanent establishments. It can however be questioned whether a new system is necessary.
The new rules on non-resident taxation should only apply to very limited passive investment structures with no or limited substance. We feel that the proposed rule for Coops is a political gesture but should not result in any meaningful changes.
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T. +31 20 301 6633
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