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The Netherlands Update
This article summarises a selection of recent tax
developments in the Netherlands. The content below is of
a general nature and should by no means be regarded as
an exhaustive outline and should also not be regarded as
a substitute for a detailed legal advice.
2012 Tax proposals
On 15 September 2011, the Dutch government published
the 2012 Tax Proposals. These contain a number of
measures aimed at implementing the ambition of the Dutch
government to achieve a simpler, more solid and fraudresistant
tax system. The proposed enactment date is
1 January 2012.
1. Limitation on interest deduction concerning
acquisition holdings
A common structure in the Netherlands is that an acquisition
vehicle borrows funds to acquire shares in the Dutch target
company and subsequently forms either a fiscal unity or
legally (de)merges with the target company. Through these
actions, the interest expenses of the acquisition vehicle can
be deducted from the operating profits of the Dutch target
company and therefore reducing the Dutch tax base.
Current rules that do no allow interest deduction, such as
thin capitalisation, could be avoided by borrowing funds
the acquisition’s vehicle equity by contribution of shares
in other subsidiaries (in which the Dutch participation
exemption applied).
To challenge this undesirable base erosion, the 2012 Tax
Proposals contains a new provision to disallow the deduction
of acquisition interest. This provision applies to interest paid
or accrued on intra-group and third party debt used for the
acquisition of Dutch target companies that subsequently
become part of a fiscal unity or that are merged with the
acquiring company. Interest deduction against the profits
of the target companies is not allowed except:
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If and to the extent the interest does not exceed
€1.000.000; or
if and to the extent the debt equity ratio (of the fiscal
unity) does not exceed 2:1. For this calculation, the
amount of equity will be reduced by the tax book value
of participations that qualify for the participation
exemption. Furthermore, the goodwill that arises due to
the acquisition can be added to the fiscal unity’s equity
(taken into account 10% yearly depreciation of the
goodwill) for the calculation of the 2:1 debt equity ratio.
Furthermore, acquisitions that resulted in a fiscal unity or
a legal (de)merger with the target company that occurred
before January 1, 2012 are grandfathered.
2. Object exemption of profits and losses of
foreign permanent establishments (PE)
Currently, foreign PE losses are deductible from the worldwide
tax profits of Dutch taxpayers, while foreign PE profits
are generally exempted via the applicable method to avoid
double taxation. PE losses will have to be recaptured but this
can be postponed. The 2012 Tax Proposals proposes to
change this method for avoiding double taxation as follows:
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■
■
the income, either positive or negative from an (active)
foreign PE, is no longer included in the tax base (object
exemption) of Dutch taxpayers
a tax credit for foreign low taxed passive PEs (this is
applicable if the activities of the foreign PE consist
primarily of passive investing or leasing and the profit
of the foreign PE is not subject to reasonable taxation,
i.e. a tax rate generally of at least 10%)
a measure to deduct liquidation losses from the Dutch
taxable profit.
3. Amendment to substantial interest levy
regime for foreign corporate taxpayers
Based on current Dutch tax law, non-Dutch resident
corporate taxpayers which hold a substantial interest
(generally at least 5%) in a Dutch resident company are
subject to Dutch corporate income tax with respect to
income and capital gains, unless the substantial interest
can be attributed to an enterprise carried on by the foreign
shareholder. This Dutch tax legislation created tension with
EU-tax law, as Dutch resident companies that hold a
substantial interest in a Dutch subsidiary are favoured, due
to the fact that the income and capital gains are exempted
based on the Dutch participation exemption.
As a result, the 2012 Tax Proposals amend the substantial
interest taxation rule in the following manner: non-Dutch
residents are only subject to corporate income tax if (i) the
substantial interest cannot be attributed to an enterprise
carried on by the foreign shareholder AND (ii) the main
28 // PKF International Tax Alert All Regions
Issue 8 November 2011