International Dutch Tax News Oct 2012


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International Dutch Tax Newsletter October 2012 - CROP Tax Lawyers

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International Dutch Tax News Oct 2012

  1. 1. October 2012 International Dutch Tax NewsHighlights: 1. General outlook Netherlands The times are changing. Due to the effects the - General outlook Netherlands Netherlands is noticing from the economic crisis and Budget cuts, elections and the Budget 2013. the developments in the EURO-zone, in April - Fiscal crisis measures for the immediate budget amendments (cuts) were to be made. Budget 2013 Various fiscal measures have been made These are described below. Note however that on public in order to achieve that the budget September 12, last, elections for the Dutch deficit remains within the EU-set boundaries: parliament (Lower House) were held, that may still affect the amendments that five parties agreed upon · No interest deductibility in case of in April 2012 (and to a smaller or larger extent were excessive interest immediately set aside in the lection programs). · Personal income tax amendments · Wage tax amendments As the Budget 2013 is proposed after the elections, · VAT amendments it may be obvious that the outcome of the elections · Other tax measures could influence the Budget. In fact the two parties · Non-fiscal measures discussing the formation of a government have already made some amendments. Below you - Emigration/transfer of seat and therefore find the positions as they were announced st the National Indus Case in their letter at the 1 of October to the Parliament. Dutch policy after the “National Grid Indus BV”-case 2. Fiscal crisis measures for 2013 - Rules for avoidance of double taxation on dividends Five political parties reached an agreement on 27 April 2012 on the budget cuts to be made for 2013. A decree was published clarifying issues on These budget cuts were required to make sure that dividend withholding tax the deficit would return in the short term to within the - Tax Plan 2013 boundaries as set by the EU (3% budget deficit September 18 the tax plan was made public maximum). for 2013 - Bill on taxation of rental income In order to achieve this, the following measures are In the Tax Bill 2013 this new tax is introduced taken. - Simplified company law per the Corporate income tax: one more interest deducti- 1st of October bility limitation As per January 1st, 2013, deduction of participation interest will be reduced in case there is "excess interest", i.e. if the companys equity is lower than the value of the participation(s). Some exceptions are in place. -1-
  2. 2. Under the Dutch domestic law as in place at Paragraph 2 of article 13L describes the methodpresent, interest expenses are, in principle, used to calculate the non-deductible (or “excessive”)deductible for corporate income tax purposes. This interest. The excessive interest is defined as theis also the case where the interest is related to a part of the interest expenses that is proportional toparticipation in another (subsidiary) company the ratio of "participation debts" to total debts.("participation interest"). Participation debt is defined as the amount by which the purchase price of the participations exceeds the stAs per the 1 of January, 2013, article 13L of the parent companys equity.Dutch Corporate Income Tax Act aims to curb thededuction of "excessive interest expenses" on loans To illustrate how these rules work out, below aused to finance participations in subsidiaries. clarifying example (amounts are in EUR millions): – the purchase price of the participation is 40;A participation is in place when a parent company – the parent companys equity is 25;owns at least 5% of the nominal paid-up capital orits voting rights of a subsidiary. Under the – the parent companys total debt liability is 45;participation exemption any dividends, interest, – the parents profits (pre-interest deduction) arecurrency gains and capital gains on shares received 60; andby the parent company from its subsidiary are fully – the total interest expenses are 75.exempt from corporate income tax. Under the current rules, the taxable amount wouldBefore the 2003 decision of the EU Court of Justice be 60 (profits) -/- 75 (interest) = -15, i.e. a loss.(here after: ECJ) in the Bosal case (C-168/01), the Under the proposed article 13L, the profit calculationNetherlands refused the deduction at the level of the would proceed as follows:parent company of interest expenses relating to The participation debt is equal to 40 (the purchasesubsidiaries abroad, in other Member States. price) -/- 25 (the parents equity) = 15.However interest expenses related to domestic The interest over this 15 is not deductible. Thesubsidiaries were allowed. Due to this EU Court of interest attributable to the participation debt isJustice decision this unequal treatment was put to calculated in the following manner:an end, resulting that interest expenses related to a Total interest expenses x (participation debt/totalsubsidiary located in any Member State were debt).deductible for corporate income tax purposes. Using the numbers in the example, 25 ( i.e. 75 xBecause of this Bosal gap, there was a reduction in (15/45)) of the total interest is excessive. Once thethe tax base due to the interest deduction, but no threshold of 750,000 EURO is subtracted, thistaxation of any income as a result of the leaves 24.25 of non-deductible interest expenses.participation exemption. Of the total interest expenses, 50.75 (75 -/-24.25) is fully deductible.The proposed article 13L aims to prevent erosion of Under the future regime, the taxable amountthe tax base that occurs through excessive debt would, therefore, be 60 (profits) -/- 50.75 (interest) =financing, thereby (somewhat) closing the Bosal a gain of 9.25!gap. Article 13L, paragraph (1) states that theprovision covers interest expenses in excess of The regulations also contain various exceptions.EUR 750,000 on loans related to participations of Paragraph 5 ensures that loans used to financethe parent company. expansions of operational activities of participations fall outside the reach of article 13L. This is achievedAs regards interests below EUR 750,000: that by omitting from the purchase price of theamount is a safe harbour and all interest remains participation, the amount attributable to thedeductible (to the extent that any other article that expansion. Whether or not there is an expansion oflimits the interest deductibility is not applicable). In operation activities depends on the facts andparagraph 7 of the article, it is stated that any circumstances. Production, distribution and salesincome and deductions that are attributable to a activities are considered operational activities.foreign permanent establishment for which the in Investment activity is not.2011 introduced object exemption applies, are alsooutside the scope of the article. -2-
  3. 3. Paragraph 6 of article 13L lists 3 situations in which Wage taxthe exceptions of paragraph 5 of article 13L doesnot apply. Generally, these are situations where a At the end of 2012, the tax brackets for the wage tax"double dip" (i.e. the same interest expense is will not be adjusted for inflation.deducted twice) is considered to take place, orwhere a new acquisition by a group is placed as a There shall be a crisis levy on high incomes.subsidiary under a profitable Dutch company to take Incomes in 2012 (including bonuses) in excess ofadvantage of the interest deduction facility (and no EUR 150,000 will be subject to a one-off withholdingreal economic reason for this placement exists). tax of 16% in 2013. The employer is liable for payment of the tax.The amendment clarifies that a participation whichis acquired in the context of an expansion of the As regards excessive severance payments,group activities is, generally, not taken into account employers must withhold tax at a rate of 75%.for the determination of the participation debts. Currently, this is 30%.However, such participations are taken into account VATin cases where a "double dip" (i.e. the same interestexpense is deducted twice) is considered to take The standard VAT rate is increased from 19% toplace, or where a new acquisition by a group is 21% with effect from 1 October 2012.placed as a subsidiary under a profitable Dutchcompany to take advantage of the interest The VAT rate on theatre and concert tickets will bededuction facility and no real economic reason for reduced from 19% to 6%.this placement exists. The amendment clarifies thatthe rules where loans laws are taken into account Other taxesalso apply to hybrid loans. The temporary reduction of the property transfer tax,Personal income tax from 6% to 2% until 31 June 2012, will be continued for 36 more months.For purposes of the mortgage interest deduction, itwill no longer be allowed to contract a non- The bank levy will be doubled from 0.022% toredeemable mortgage. For new contracts (entered 0.044% short-term liabilities and from 0.011% tointo in 2013 and later),, mortgage interest will only 0.022%, for long-term liabilities.remain deductible if the mortgage is redeemedwithin 30 years. The green tax on polluting energy will be increased.For 2013, no adjustment of the tax brackets or tax Non-fiscal measurescredits will take place. From 2013 the pensionable age will be increased toThe Tax Plan 2012 eliminated the continuation reach a pensionable age of 66 by 2018; and 67 bybonus for employees aged 62 and over, and 2021. In 2013, the new pension age will become 65replaced it with an employment bonus (with effect years and 1 month.from 1 January 2013). In the Budget 2013 theemployment bonus will, however, be abolished (i.e.not enter into effect). 3. Bill on implementation of National Grid Indus caseFor certain investments in Box 3 (fictitious yield onestate) the credits and exemptions are changed as On 15 May 2012, the Dutch State Secretary forfollows: Finance submitted a Bill to Parliament on the deferral of the payment of exit taxes. This Bill – the tax credit available for so-called "green" implements the outcomes of the National Grid investments will remain 0.7% in 2013; and Indus (Case C-371/10), in which the ECJ held that– the credits and exemptions for social the Dutch exit tax provisions for companies were investments and investments in venture disproportionate because they provided for the capital will be abolished with effect from 1 immediate recovery at the time of transfer of tax on January 2013. unrealized capital gains relating to assets of a -3-
  4. 4. company transferring its place of effective 4. Rules for avoidance of doublemanagement to another Member State, without taxation on dividends under taxgranting the option of a tax deferral. treatiesThe Bill is expected to become effective on 1 In July a decree was published on the implementingJanuary 2013, with retroactive effect to 29 rules for avoidance of double taxation on dividendsNovember 2011 and grants taxpayers emigrating to under tax treaties. This decree applies retroactivelyan EU or EEA Member State the following three to dividends paid on or after 1 January 2012.options: to pay the exit tax due at the time ofemigration, to request a tax deferral until the In the decree the term dividends is explained bymoment that the capital gains on assets are realized making a distinction between portfolio andor to pay the exit tax due in 10 equal annual participation dividends. For portfolio dividends theinstallments. withholding tax rate under tax treaties is generally 15%, but sometimes 10%. For qualifying dividendsA deferral of the payment or a payment in 10 equalannual installments will only be granted if the the withholding tax rates are 0%, 5% or 10% and ataxpayer provides a guarantee such as a bank minimum participation is required, varying from 5%guarantee or a mortgage on property. In addition, to 50%.interest will become due for the deferral of thepayment. The decree clarifies that under tax treaties with EU Member States a request for a refund of withholding tax must always be made within 5 years, also if theAlso, emigrating companies have to meet various treaty mentions another period. Furthermore, theadministrative obligations and to submit on anannual basis a balance sheet and profit and loss Decree provides that the 5 years period also applies if the treaty does not specify the period for claimingaccount. In addition, the taxpayer annually has toprovide sufficient data to determine if and to which a refund.extent the tax deferral must be terminated. Furtherclarifications of those obligations will be specified by 5. Tax Plan for 2013 presented toa future decree. parliamentThe deferral will immediately be terminated if one of The Tax Plan for 2013 was made available to thethe following situations occurs: Lower House of parliament by the Minister of– the taxpayer is no longer a resident of or Finance on 18 September 2012. established in an EU or EEA Member State;– the taxpayer no longer meets the administrative Although the plans are still to be discussed in obligations; Parliament and can be amended, we provide a brief– the taxpayer no longer provides a security; or overview below. In a later stage we shall inform you about the amendments that shall be enacted.– the capital gains would have been taxed if the taxpayer would have been liable to tax in the Already it was indicated that the tax-free travel costs Netherlands. (inclusive of the possibility to use a company carComparing the Bill to previous policy decrees, the free of wage tax) will remain in place and that thatapplication is expanded to mergers and split-ups. proposal of the 5 parties as agreed upon in April 2012 shall not be enacted, in exchange for this theThe Bill may still be questioned, as it still contains insurance tax shall be increased from 6 to 21%.the guarantee requirement. It is a question whethersuch requirement is in line with the Lasteyrie du Corporate income taxSaillant (Case C-9/02). In that case, the ECJdecided that the French exit tax on a substantial Besides the introduction of the article 13L, articleshareholding owned by individuals was incompatible 10D, containing the thin capitalization rules, will bewith the freedom of establishment because it was abolished. This abolishment is motivated with theonly possible to obtain a tax deferral if a fiscal reasoning that the regime has become superfluousrepresentative was appointed and a guarantee for due to existing specific restrictions of the interestthe tax due was provided. deduction possibilities and the introduced restriction of the interest deductibility for participations. -4-
  5. 5. The fiscal unity regime is clarified due to the Various modifications are also proposed withintroduction of a more flexible limited liability respect to the education reduction, including:company regime (see also below). - the introduction of the requirement that anOn 1 October 2012, a more flexible regime for a education program has to last a minimumlimited liability company (BV) will become effective. number of hours, which will vary per typeThis new regime allows to issue shares without of education;voting rights. For the application of the group - the reduction can be claimed at oncetaxation (fiscal unity) regime, the parent company instead as currently per quarter; and themust be the legal and economic owner of 95% of reduction for starters granted during thethe shares of the subsidiary. The tax plan clarifies first 3 years will be reduced from 60% tothat the ownership must represent at least 95% of 50%.the statutory voting rights in order that shareswithout voting rights will entitle to apply the fiscal The maximum reduction per employer will remainunity regime. EUR 14 million.The current taxation of the remuneration received A director-substantial shareholder who has hisfor statutory activities of members of a board of own pension company may reduce his pension ifdirectors or commissioners will be extended to the assets of the company at the pension dateremuneration for actual management activities or are less than 75% of the pension obligationmanagement services. The ability to exercise these included in the balance sheet. The reduction is,taxing rights may be restricted by a tax treaty. however, only allowed if the shortage results from investment or business losses.Individual income tax The reduction facility will, under a transitionalFrom 2013, capital insurances related to an owner- regime until 31 December 2015, also apply tooccupied dwelling will no longer be exempt. pensions which are already being paid on 1 January 2013.Resident and non-resident taxpayers who are notsubject to social security will become entitled to a The regulation for education costs will bepayment of the social security part of the general simplified and include education and examinationlevy rebate, if the following cumulative conditions fees, Ph.D. costs and costs for the requiredare met: their income is too low to fully credit their learning and safety tools. Computer costs will nogeneral levy rebate with the income tax due and the longer be due on their spouses income is at least equal tothe amount of the paid-out levy rebate Packaging taxProperty transfer tax The packaging tax will be abolished. For products exported after 31 December 2012, butThe Budget contains the measure on the extension before 1 April 2013, the tax will still be refundedof the exemption from property transfer tax in the until 1 April of a subsequent transfer of a property. Coal taxAnti-avoidance measures A coal tax of EUR 13.73 (to be indexed) perThe tax plan contains several anti-avoidance 1,000 KG will be introduced for electricitymeasures, including: a 150% penalty in case of produced by coal.fraud with subsidies, such as the childcare andrental subsidy. Tax on passenger cars and motorcyclesWage tax The reduction for used cars will become equal to a fixed percentage of the catalogue vale (i.e. theThe reduction for R&D activities will be reduced advised sales price).from 42% to 38% and be calculated over amaximum amount of EUR 200,000. The reductionon the excess wage will remain 14%. -5-
  6. 6. 6. Bill on taxation of rental income the shareholders meeting. If it is intended to presented to parliament distribute dividends, the managing director is required to perform tests to ensure that theIn the Tax Plan for 2013, a Bill on the taxation of company in the future can -after the dividend hasrental income is included. Rental income from been distributed- continue to meet its paymenthousing in the regulated sector will become obligations. If he does not perform such test orsubject to a special levy of 0.0014% of the value the test shows that the dividends in principleof the houses. The rate will be increased to cannot be distributed, he will become severally0.231% in 2014. The rate comes up to an liable for any shortages of funds. Also, theaverage levy of EUR 2 in 2013 and of EUR 356 shareholder can be obliged to repay thein 2014 per home. distributed dividend.The new levy will apply to both residents as well Note that such repayment does not mean thatas non-residents deriving rental income in the any dividend withholding tax that was paid to theNetherlands. However, it does not apply to Dutch tax authorities shall be repaid by the Dutchlandlords who do rent out less than 10 houses, tax authorities.also it does not apply to rental income derivedfrom non-social housing. Currently, these arehouses with a minimum monthly rent ofEUR 664,66 (this figure is to be adjustedannually). 7. Bill to simplify limited liability For information please contact: company legislation gazette Marco Visser or Arjan van Oosten T: +31 33 463 57 27 T: +31 33 463 57 27The Bill to simplify the limited liability company E: E: avoosten@crop.nland the related implementation law was gazettedin the Official Gazette of 5 July 2012. The Bills iseffective from 1 October 2012. 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. CROPIn it, the Dutch company law is simplified. The registeraccountants and CROP belastingadviseurs is not liable for the information in this publication or consequences of the use of thisobligatory minimum share capital of 18,000 EUR publication. CROP registeraccountants and CROP belastingadviseurs willis not any longer required. It is possible to have not be liable for any direct or consequential damages arising from the use of the information contained in this publication.shares that do not have the capacity to vote in -6-