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Crop international newsletter january 2010
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  • 1. - 1 - www.crop.nl January 2010 International Dutch Tax News Best wishes for 2010! First of all we would like to wish you all the best for the year 2010. We hope that the new year will bring a lot of new opportunities. Corporate income tax changes Three important changes to the Corporate Income Tax Act are in place as of 2010: 1. Amendments to the rules to qualify for the participation exemption As could be expected after the consultation document of June 15, 2009 and the following comments from interested parties (businesses, tax advisors, scholars), the participation exemption shall be amended as of 2010. The changes to the participation exemption enacted in 2007 affected participations in low taxed portfolio investment subsidiaries. To tackle the negative aspects of the present regulations, which are considered unclear and difficult to apply in international structures, the portfolio interest rules shall be replaced by new rules. The proposed amendments mainly concern the introduction of an intention test, a liberalization of the assets test, and a more practical application of the subject-to-tax requirement, wherein the latter two factors will function as safe harbors. Under the new legislation, the participation exemption shall not apply when shares in a subsidiary are held with the intention to treat them as a portfolio investment. This rule already applied until 2007, but was abolished when the current law regarding the low taxed portfolio investment subsidiary regime was enacted. Also under the present rules, by way of fiction, participations in subsidiaries with shareholdings of less than 5% in other companies and in subsidiaries with group financing activities are deemed to be held as portfolio investments. As of 2010, if shares in a subsidiary are held as a portfolio investment (thus failing the intention test), the participation exemption may still be applicable if a ‘subject-to-tax test’ or an ‘asset test’ is met. Under the first test, the subsidiary itself should be subject to a tax rate of 10% or more. As of 2010, and unlike under the current rules, a statutory tax rate of 10%, in principle will suffice. Thus, it shall not be necessary to recalculate the tax base of all subsidiaries fully in accordance to Dutch tax law. However, the subject-to-tax test will not be met when certain significant differences exist between the Dutch and the foreign tax regime, resulting in a lower effective tax rate than 10% (e.g. eroded tax- base). Under the present asset test, the assets of the subsidiary should not directly or indirectly consist to a large extent (i.e. more than 50%) of low taxed (i.e. less than 10%) portfolio investments. Under the Highlights: - Corporate income tax changes o Participation exemption o Loss carry back period extended o Introduction of innovation box o Other amendments - Update on group interest box and interest deduction rules The Under-Mister of Finance sent a letter to parliament in which he provides an update on the introduction of the group interest box and on additional interest deduction rules. - Stricter compliance New legislation will apply as of 2010 on basis of which the tax authorities can impose assessments in much more cases. - Exchange of information The Netherlands have concluded an exchange of information agreement with Spain and the Netherlands Antilles that will enter into force in 2010. - Tax treaty news A new treaty with Japan has been announced.
  • 2. - 2 - www.crop.nl 2010 test, taxation at the level of indirect subsidiaries may also be taken into account, meaning that portfolio investments that are subject to sufficient taxation would not affect application of the participation exemption. This is not the case under current rules where only taxation at the level of the subsidiary itself is taken into account. The new rules are expected to offer much more transparency and should reduce the administrative burden that is put upon Dutch companies to determine the applicability of the participation exemption. What has not been dealt with and the bill does not enact is amending the current tax treatment of hybrid loans. 2. Extension of the loss carry back period Under the present rules, the loss relief can be applied 1 years retroactively and 9 years into the future. In order to help taxpayers improve their cash flow position, an opportunity is enacted for taxpayers to request to carry back losses for the years 2009 and 2010 for three years. The carry back for years 2 and 3 would be limited to € 10 million, but the carry back for year 1 shall be unlimited. If a taxpayer opts for the extended carry back loss relief, the carry forward shall be limited to six years instead of nine. 3. Adjustments in the taxation of IPR: introduction of an innovation box instead of the patent box The patent box regime will be renamed the innovation box regime and the effective tax rate will be reduced from 10% to 5%. Further, the current cap shall be abolished. In addition, as announced earlier, the losses incurred on innovative activities would be deductible at the normal (high) rate of 25.5%. 4. Other proposed changes The proposals also extend the accelerated depreciation facility in place for 2009 to investments made in 2010, extend the facilities for R&D activities and amend the tonnage rules for shipping activities. The legal-form and subject-to-tax requirements for applying the withholding exemption to profit distributions to EU-resident parent companies will be abolished. The withholding exemption will not apply, however, on distributions to institutions that are comparable to the Dutch fiscal investment institution or tax-exempt investment institutions. Letter of December 5, 2009: proposed measures relating to interest deductibility and the group interest box following the consultation paper After issuance of the consultation document on the modernization of the Dutch corporate income tax, comments were made. Whereas the proposal regarding the participation exemption shall be effective as of 2010, no measures shall become effective as regards the interest deductibility and the group interest box. On December 5, last, Under-Minister of Finance De Jager sent a letter to the Lower House, outlining the current status of both elements. The Under-Minister argues that the effects of the mandatory group interest box requires further investigation. This will be carried out by a study group established by the Ministry of Finance. The Under-Minister stated in the letter that the proposals for reparation of the implications of the Bosal judgment and possible earnings stripping- regulations are withdrawn. Both of these elements will be subject of study for the study group. The Under-Minister shall, however, take measures against the use of acquisition holding companies, where an acquisition holding company and a Dutch target company form a fiscal unity. The measure will affect interest deductibility both on intra-group loans and external loans related to an acquisition of a subsidiary. The Under-Minister is proposing that losses from permanent establishments are no longer deductible from the world-wide profit. This issue is a completely new issue, which was not dealt with in the consultation document. Losses on the cessation of a foreign business would remain deductible. As regards this matter and the acquisition by a holding company, the Under-Minister is planning to present new policies and/or /legislation in the spring of 2010. Stricter compliance The statutory conditions under which the tax inspector may impose additional assessments or revise a decision will be significantly revised in favor of the tax authorities. From 2010 onwards, the tax inspector can impose an additional assessment if an imposed tax assessment contains an error of which a taxpayer could reasonably be expected to have been aware. How the error came about is irrelevant. Also, VAT refunds that were by mistake granted pursuant to a taxpayer’s or withholding agent’s request will also be subject to the imposition of additional assessments. Late payment interest on
  • 3. - 3 - www.crop.nl inheritance tax owed will begin at eight months from the death of the deceased. No late payment interest will be imposed with respect to gift tax. The (default) penalty for failing to file a personal income, corporate income, gift, or inheritance tax return, or filing a late or incomplete return for those taxes, is quadrupled. From now on, a default penalty will also be imposed in the event that personal income, corporate income, gift, or inheritance tax is not, not entirely or late paid. Failing to meet a substantial number of tax obligations, including filing a timely request for a tax return form or granting access to business premises, will also result in the imposition of a default penalty. Currently, failing to satisfy those obligations is still a criminal offense. From 2010 onwards, the maximum default penalties will be indexed only once every five years. Thus, for the next five years, these penalties are fixed at a maximum of € 4,920. Exchange of information agreement between Netherlands in respect of Netherlands Antilles and Spain enters into force in 2010 The exchange of information agreement on tax matters between the Netherlands in respect of the Netherlands Antilles and Spain, signed on 10 June 2008, shall enter into force on 27 January 2010. Note, however, that the provisions of the agreement shall have effect for any taxable period of time that could still be investigated at the moment of the information request according to the laws of the applicant party. In this respect, the Netherlands Antilles’s legislation establishes that if, on the basis of new information, a previous assessment proves to be insufficient, the tax inspector may issue an additional assessment within 5 years (10 years in case of fraud) and 15 years in respect of taxable income from foreign sources. Spain however has got a statute of limitations of 4 years. Announcement of a new tax treaty with Japan On December 18, 2009, the Dutch Ministry of Finance announced that it has entered into an agreement with the Japanese tax authorities on the text of a new tax treaty. One of the features of the new treaty is that it provides an exemption from dividend withholding tax for qualifying dividends distributed by a resident of one of the treaty countries to a resident of the other treaty country. The current treaty imposes a tax treaty rate of 5% on qualifying dividends. The exemption may be applied if a resident of one of the treaty countries has held at least a 50% participation in a company based in the other treaty country. A rate of 5% applies to participations of 10% to 50%. For lower/other participations a rate of 10% shall apply. No changes have been made to the interest withholding tax rate (0% for financial institutions and 10% for others). Royalty withholding shall be reduced from 10% in the present treaty to nil under the new treaty. It is expected that the new treaty shall be concluded mid-2010, after which it is planned to become effective as of 2011. For information please contact: Marco Visser or Frans Tempel T: +31 33 495 25 00 T: +31 33 463 57 27 E: visser@crop.nl E: ftempel@crop.nl Disclaimer: CROP registeraccountants and CROP belastingadviseurs makes no representation nor gives any warranty (either express or implied) as to the completeness or accuracy of this publication. CROP registeraccountants and CROP belastingadviseurs is not liable for the information in this publication or consequences of the use of this publication. CROP registeraccountants and CROP belastingadviseurs will not be liable for any direct or consequential damages arising from the use of the information contained in this publication.

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