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New Dutch Bill Catalyses Structure Reviews
Yesterday the Dutch government submitted a Bill to Parliament introducing a new interest deduction limitation rule. The proposed Bill was designed to limit interest deduction on excessively leveraged participations and should only affect a limited number of taxpayers. Taxand Netherlands explores the Bill and the impact that its passing could have.
This Bill allows for a lenient method of calculating the potentially restricted interest - including rules to limit aggressive tax planning structures, and an emphasis on the competitiveness of the Netherlands as an investment and holding company. The Bill, if passed, could be effective as of 1 Jan 2013 which is likely given the political and economic climate. The proposal is to address the "Bosal gap" where the EU court held that a Dutch provision disallowing a deduction for costs in relation to a foreign participation, was in conflict with EU law.
Taxpayers can now deduct interest expenses related to loans taken out, to finance their participations provided that no limitations rules apply (e.g. anti-base erosion, thin-cap and acquisition holding rules). At the same time, these taxpayers may benefit from the participation exemption as income derived from qualifying participations will be exempt. The government considers this to be a mismatch which needs to be repaired. Instead of introducing unattractive earnings stripping rules, the government has proposed a clear and understandable rule under which corporate taxpayers may be limited in deducting excessive participation interest expenses.
Taxand Netherlands explores the Bill in greater depth
The proposed new rule is in principle an efficient mechanism, and still allows for interest deductions related to (foreign) subsidiaries- provided that business activities are being financed. However, some of the details are still unclear. The exception related to business activities could result in discussions with the tax authorities and includes, in current form, overkill in relation to tax planning structures.
Given the potentially immediate impact of this Bill, now is the time for companies to check whether the new rule has an impact on their tax structure(s). Actions could be taken to reduce or avoid the adverse consequences of the new rules, for example through equity contributions or refinancing.
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