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Proposed changes to Dutch corporate tax as of 2011
Traditionally the main features of Dutch government policy for the next year are published on the third Thursday in September ("Prinsjesdag"). The Minister of Finance also proposes the next year's national budget, including the 2011 tax package. The 2011 tax package describes the government's plans with regard to tax measures.
The current government is however currently acting in a caretaker capacity and cannot introduce any controversial new policies. Therefore the amount and nature of the proposed changes are limited this year. Since Dutch Parliament has to approve these proposals, they may be subject to changes. Most proposals are expected to become effective on January 1, 2011. Please find below the most notable proposals from a corporate income tax and real estate transfer tax perspective.
Reduction of the corporate income tax rate
One of the main proposals from a corporate income tax perspective is that the corporate income tax rate will be reduced. The corporate income tax rate on profits up to EUR 200,000 will remain at 20%. The reduction to 20% was first introduced as a temporary measure in 2009 to help companies hit by the economic crisis but will now become permanent. The proposed corporate income tax rate on profits of more than EUR 200,000 is 25%, which is a 0,5% reduction on the 2010 corporate income tax rate.
These changes (once approved) to the corporate income tax rate may impact (the calculation of) the deferred tax assets and liabilities. Deferred tax assets and liabilities should be measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled based on tax rates/laws that have been enacted or substantively enacted by the end of the reporting period (IAS 12.47).
Continuation of economic crisis measures
As part of the measures taken to deal with the economic crisis in 2008 and 2009, the government introduced temporary measures for accelerated depreciation and carry forward losses. It is now proposed to extend these measures to 2011.
Corporate taxpayers can carry back their losses one fiscal year. Similar to the measures for 2010, it is proposed to provide for a temporary extension of the tax loss carry back period to three years. Taxpayers can choose to apply the extended carry back period in their tax return. Upon election to use the extended carry back period the maximum period for tax loss carry forward will be reduced from nine to six years. The extended carry back is limited to EUR10 million.
The measure with regard to accelerated depreciation will also be extended to 2011. Like in 2010, investments in new assets in 2011 can be depreciated in two years at any percentage not exceeding 50%.
Real estate transfer tax
Transfers of shares in 'real estate companies' can be subject to Dutch real estate transfer tax (RETT). Following the 2011 Tax Package, companies will more easily qualify as a real estate company and therefore transactions involving such companies are more likely to be within the scope of Dutch RETT. These changes are aimed at limiting abuse situations in which levy of RETT is avoided through the transfer of shares in companies in stead of transfer of the underlying real estate assets directly.
Under the current legislation only companies whose assets consist of 70% or more of Dutch real estate assets can qualify as real estate companies. The new legislation stipulates that companies who's assets consist of 50% or more of real estate (and who's assets consist of at least 30% Dutch real estate assets) can already qualify as 'real estate companies'. Furthermore the legislation contains rules for excluding certain non-real estate assets for purposes of the 50% / 30% test mentioned above. Finally the rules for determining whether (a set of) transactions result in a qualifying transfer that is subject to RETT are broadened. In this respect an important change is that in specific situations RETT may now also be due without a 'legal' acquisition of shares (i.e. changes in the rights relating to existing shares). All these changes significantly broaden the scope for levy of RETT upon transactions involving shares in entities (also) holding Dutch real estate assets.
Leveraged acquisition holding structures
In previous communications, the Dutch Ministry of Finance announced that they intended to propose new limits on the deductibility of interest for leveraged acquisition holdings. The tax package 2011 however does not include any new restrictions on interest deductions.
Treatment of permanent establishments
The Dutch Ministry of Finance also previously announced that they intended to change the treatment of foreign permanent establishments in order to disallow the deduction of foreign losses. The tax package 2011 however does not include a proposal in this regard.
Other corporate income tax changes
The rules regarding the treatment of losses / profits in certain change of ownership situations are proposed to be changed. Under the current legislation it is possible to off set profits of the year of transfer with losses of that same year (realized / created after the transfer). Under the proposed legislation this is no longer possible. Losses after the date of transfer can no longer be off set with profits from prior to the transfer. Whereas this change is aimed to prevent the trade in so called profit companies it will have a broader impact and will for instance impact the valuation of tax losses / profits of companies in the year of their transfer.
The beneficial innovation box regime, with an effective tax rate of 5%, will be amended in order to include taxable income which is received after the application for a patent. At the moment only income received after the approval of the patent is included in the innovation box regime.
The tax package 2011 does not include major corporate tax changes as a result of the fact that the Netherlands currently has a caretaker government. It does however include some important measures broadening the scope of two anti-abuse provisions.
The reduction of the corporate income tax rate and the continuation of the crisis measures are welcome for Dutch businesses.
We feel that it is appropriate that the tax package 2011 does not include the previously discussed anti-abuse rules with regard to interest deductions and permanent establishments. Any decisions on these changes should not be taken by a caretaker government and sufficient time should be available to discuss these measures in Dutch Parliament.
Your Taxand contacts for further queries are:
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Henk de Graaf
T. +31 20 7570912
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