International Newsletter February 2012


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International Newsletter February 2012

  1. 1. February 2012 International Dutch Tax News CORPORATE TAXATION Highlights: Restriction of the interest deduction for take-over holdings - Restriction of interest deduction in case of a take-over As of 2012, the Dutch Corporate Income Tax Act Interest on excessive debt financed contains a provision to limit the deduction of acquisitions no longer deductible. excessive interest expenses incurred by Dutch - Change in treatment of losses of companies to finance the acquisition of a Dutch subsidiary. Whereas initially a ratio between equity permanent establishments and debt (including loans from non-related third Changes have been enacted with regard to parties) was considered to be the measure to the treatment of results of p.e.; losses can no determine how much interest should be tax- longer be offset. deductible, this was amended during parliamentary - Substantial interest treatment proceedings in the sense that the excessive debt financing is determined by means of the purchase limited to abuse situations price and the takeover debt. Foreign entities owning shares in Dutch companies only taxable in cases of abuse. No excessive debt financing is recognized if the - Dividend withholding tax for take-over debt in the year of takeover is not more than 60% of the purchase price. After the first year, cooperatives this percentage will be reduced with 5% per year to Situations of abuse with cooperatives are ultimately 25%. combated. - 30% regulation amended Non-deductible interest can be carried forward to Several restrictions are made to the 30% future years. The new rules restricting the deduction regulation of excessive interest for takeover holdings will only - Procedural measures apply to cases where the fiscal unity between the acquiring company and the acquired company is We outline several changes. formed (or if the fiscal group already exists, an - Tax treaty news expansion was made) after November 15, 2011 (the o New and amended treaties date the amendment was introduced in the Bill). o Dutch Sandwich back in business? - Other Goodwill paid to acquire the shares of the subsidiary Dutch policy after the “National Grid Indus and equity attributable to participations will be BV”-case. eliminated after the tax consolidation and, consequently, will reduce the tax equity. However, the government is considering to allow a phased-During the last quarter of 2011 Dutch MP‟s have write off of the goodwill within a period of 10 years.been busy to discuss the Tax plans for 2012.Finally, December 21, 2011 these plans were For the SME‟s the law shall have little or no effects,approved by the Parliament and have become as this measure only starts if the interest expensesenacted as per the 1st of 2012. amount to more than € 1 million per year.Below we shall describe several issues that weconsider worthwhile to read about for personsworking in the international tax environment. -1-
  2. 2. Exemption of profits of foreign permanent tax) and the substantial interest is not part of theestablishments (hereafter: “ PE’s”) business assets of the members of the cooperative.Until 2012, the Netherlands used a system for the Withholding taxescalculation of the profits of a PE, under which profitsof a foreign PE were exempt, but losses were Cooperatives are in principle not subjected to Dutchdeductible from the profits of the Dutch company. dividend withholding tax. However, as of 2012,These losses were to be recaptured with future dividend distributions by cooperatives will becomeprofits. Under this system, in case of foreign losses subject to dividend withholding tax in abuse cases.this could offer liquidity benefits. There will be no withholding tax if the membershipDuring the current economic situation, these liquidity rights belong to the business assets of the memberbenefits were used more and more, e.g. by concerned, unless profits made before theintroducing short-term accelerated amortization interposing of the cooperative are distributed.schemes, which was one of the measures taken tocombat the effects of the economic crisis. This Also to pension funds in third countries a refund ofhowever has changed as of 2012. As of that year, a dividend withholding tax will be granted. Suchfull exemption of foreign PEs results is introduced, pension fund is considered to be a an exemptwhich means that losses of a foreign PE will no foreign entity if the following cumulative conditionslonger be deductible in the Netherlands. The only are met. In the first place a tax treaty must exist withexception regards final liquidation losses. the third country providing for exchange of information and secondly, the dividends are paid onAdditionally, the "subject to tax" requirement is a portfolio participation of less than 5%.abolished that applied to profits derived from aforeign PE established in a country with which the PERSONAL TAXATIONNetherlands has no tax treaty. Only for passive PE‟sthis requirement will remain in place. The 30% regulationThe exemption will not apply to currency gains Major amendments have been made to the 30%resulting from the determination of the profit of the regulation. Dutch wage tax law contains a generalforeign PE. With respect to currency gains derived provision exempting actual extraterritorial expensesfrom a foreign PE, it may be noted that tax can be of temporary employment of employees abroad.avoided by filing a request to apply a functional Also, to increase the highly skilled labor migration tocurrency. the Netherlands, this regulation applies upon approval after request to inward migration of highly skilled employees with specific knowledge andTaxation of substantial interest in Dutch experience. The regulation arranges that Dutchcompany or cooperative owned by a foreign employers of employees who have a 30% ruling canentity reimburse 30% of the taxable base of the employees wages as a tax free reimbursement forForeign entities owning a substantial interest of at extraterritorial expenses. Until 1 January 2012, aleast 5% in a Dutch company or cooperative are 30% tax ruling was granted for a maximum of 10subject to Dutch corporate income tax unless that years.interest is part of their business property. As the rule was also used by persons for whom itThis position is not taken for the majority of cases. was not intended and – although this was not statedOnly in situations of abuse, meaning that the publicly – because of the sentiments this regulationstructure can be considered to aim at the avoidance causes to Dutch „regular‟ employee and the need toof income tax or dividend withholding tax, the above increase the revenues, several restrictions to thedescribed position would apply. During applicability of the 30% regulation have beenparliamentary proceedings the following example enacted from 1 January 2012 onwards.was provided of abuse. It described a situationwhere a substantial interest in a cooperative is First change is that the maximum duration of theinvolved. There is abuse if the cooperative was only regulation is reduced to 8 years. Secondly, theused to avoid dividend withholding tax (in principle requirement of specific knowledge and experiencethe cooperative is not liable to dividend withholding is translated into an income requirement. The minimum salary threshold for highly skilled migrants -2-
  3. 3. of 30 and over shall amount in 2012 to € 35,000 The interest, which is currently calculated from 1(gross per annum, exclusive of the 30% tax-free January following the tax year, is starting 2012remuneration). For individuals holding a Masters calculated from 1 July following the tax, and who have not reached the age of 30,the minimum salary requirement is € 26,605 (gross After a request for a provisional or final assessment,per annum, exclusive of the 30% tax-free this assessment must be made within 8 weeks. Theremuneration). An exemption from the minimumsalary requirement is introduced for scientific reasonable period for issuing a provisionalactivities. Master degree students and Graduates assessment after filing a tax return will be set at 13below thirty, will be deemed as having been hired weeks.from abroad. The time they require for their thesis inthe Netherlands is not taken into account for a TAX TREATY NEWSreduction of the maximum time the 30% regulationmay be applied. New or amended tax treaties Several tax treaties during the last quarter of 2011In the third place, periods of living and working in entered into force:the Netherlands during the last 10 years were - Hong Kong (October 24, 2011)deducted from the maximum period of time of 10 - Switzerland (November 9, 2011)years. From 2012 onwards, work and stay in the - Barbados (amending protocol, NovemberNetherlands for the last 25 years will be taken into 13, 2011)account. This restriction shall only be in place for - Panama (December 1, 2011)30% regulations issued after 2011. - Oman (December 29, 2011) - Japan (December 29, 2011)Also, rulings reaching 5 years of appliance after 1January 2012 will be assessed again on the basis of Dutch sandwich back in business again?the new criteria. Changing employers in themeantime will not change this. Press releases issued have indicated that the Dutch government and the authorities of Curaçao andFinally and probably the most important change is Aruba have reached agreement over a new bilateralthat a territorial restriction to the applicability of the tax regulation. These new regulations are expectedregulation is enacted: anyone living within a 150 km to be effective as of January 1, 2013.radius from the Dutch (land) border will cease toqualify as having being hired from abroad. Under these proposals, a 15% dividend withholding tax is agreed upon if the national legislationAs a consequence, employees who live in Belgium, provides such instrument. At present, Curaçao doeswestern Germany, parts of Northern France and not impose dividend withholding tax on dividendLuxemburg will be excluded from the benefit. The distributions. The Netherlands impose an 8.3%underminister of Finance declared that the 150-km dividend withholding tax.rule does not apply to the UK, as there is no directborder between the UK and the Netherlands. Exception to the 15% taxation is a 0% rate for dividends held by active companies. For these companies, also a limitation-on-benefits clause shallPROCEDURAL MEASURES be inserted in the Regulation. Up to now the text of this clause is not known. There shall be a minimum-Double punishment in tax cases is as of January interest requirement of 25%. As to the “active”1, 2012 possible: the tax authorities may impose a requirement also no guidelines have been issued.criminal penalty after a an administrative penalty As a transitory measure, there shall be a 5%was imposed previously. This is only possible if new dividend withholding tax as of 2013 up to 2020 offacts occur. 5% for not-active holding companies residing in Curaçao and holding at least 25% of the shares of aThe taxpayer must pay interest if an assessment is Dutch subsidiary.submitted late due to an act or omission by thetaxpayer. In case the taxpayer submits a tax return Another (tax) measure that has been agreed upon isin which he requests for a tax refund, and that that the country of emigration may levy inheritanceassessment is imposed accordingly, interest shall and gift tax for a period of up to 5 years afterbe payable to the taxpayer. emigration, but has to grant a credit for any such taxes levied by the country of immigration. Up to now under the Tax Regulation for the Kingdom, the -3-
  4. 4. former state of residence can only levy inheritance may request security, e.g. a bank guarantee, for thetax within one year after emigration and no gift tax. delay.Exchange of information will take place in We wonder whether such a request for issuance ofaccordance with international standards. In addition, security to a tax payer can be validly made after the De Lasteyrie du Saillant-case, where the court ruledCuraçao is considering to implement automatic that security is not required in case of a transfer ofexchange of information under the Savings the seat of residence to another EU-state. We see aDirective. parallel with the case where a corporate entity transfers its effective management to another EUOTHER state. We expect - in case the policy, as it is laid out in the December 20 regulation, remains effective -Dutch policy after the “National Grid Indus BV” case law on this matter and monitor developmentscase regarding the transfer of the seat of a in this respect.Dutch legal entityIn the above mentioned case, on November 29, For information please contact:2011, the EU Court of Justice ruled on the questionif and - if yes - under what conditions the Marco Visser or Frans TempelNetherlands may tax any gains made in case of a T: +31 33 495 25 00 T: +31 33 463 57 27transfer of the board, and thus the transfer of the E: E: ftempel@crop.nlplace of the company‟s effective management.In this judgment the Court issued a ruling on Disclaimer: CROP registeraccountants and CROP belastingadviseurs makes no representation nor gives any warranty (either express orquestions asked by the Amsterdam court of appeal implied) as to the completeness or accuracy of this publication. CROPthat a country is permitted to tax such gains. 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 willThe EU Court ruled that in principle the exit-country not be liable for any direct or consequential damages arising from the use of the information contained in this entitled to tax such gains. However, the Courtalso ruled that it would be acceptable if there is aregulation in place under which a taxpayer can optfor a delay of payment. The Netherlands at thatpoint in time did not have such regulation in place.December 20, 2011 the underminister of Financeissued the new Dutch policy guidelines as regardsthis situation. In this new policy it is possible to optfor a delay of payment until the moment any hiddenprofit gain is realized. However, the tax authorities -4-