The corporate tax system of the Netherlands contains a number of well-known features providing for an attractive investment climate, such as: the fiscal unity regime with tax consolidation for group companies, a full participation exemption for capital gains and dividends from qualifying participations, and several favourable tax regimes (e.g. for patent income, investment vehicles, and income from ocean shipping activities). Until 2020, there was no withholding taxation on interest or royalty payments made by the taxpayer. However, as of 2021, there is in certain situations (we refer to the section ‘Conditional withholding tax on interest and royalty payments’ below).
The Dutch ATAD II legislation entered into force on 1 January 2020 (Anti-Tax Avoidance Directive, concerning hybrid mismatches within the EU and with third countries). The legislation largely follows the EU Directive but is stricter in some instances, e.g. taxpayers must document applicability on the measure for payments, losses, etc. In addition, the Netherlands does not make use of the possibility to delay measures in relation to financial institutions, nor does CFC inclusion always qualify as sufficient inclusion. The tax liability measure (for 'reverse hybrids') is to apply from 1 January 2022.
Beneficial ownership and substance requirements
As of 1 January 2020, Dutch tax authorities are able to tackle abuse more effectively, even in situations where the Dutch substance requirements are met. This also applies vice versa: where a taxpayer does not meet the Dutch substance requirements, they still have the opportunity to prove there is no abuse. The Dutch substance requirements are therefore no longer considered to be a 'safe harbour' for beneficial ownership. The amendments apply in relation to EU member states but also to third states. There are additional substance requirements for financial service companies (intercompany financing / licensing).
Mandatory disclosure (DAC6)
DAC6 requires tax advisers, intermediaries, and in some cases taxpayers to exchange information with the tax authorities on certain structures. The aim is to counter aggressive tax planning, although non-aggressive structures may be impacted as well, as long as there is some connection to the European Union. On 1 January 2021, the 30-day period for the reporting of new cross border arrangements under the DAC6 regime starts. This means that as from 1 January 2021, so-called cross-border tax arrangements become reportable within 30 days after the arrangement is made available or ready for implementation or the first step of implementation has been made. Arrangements that became reportable between 1 July 2020 and 1 January 2021 need to be reported before 31 January 2021. The deadline for reporting ‘historical’ cross border arrangements (arrangements of which the first implementation step occurred between 25 June 2018 and 1 July 2020) is 28 February 2021. Read more on Dutch DAC6 implementation here.
Emergency measures fiscal unity regime
In the wake of the 2018 Court of Justice for the EU ruling of the ‘per element approach’ applicable to the Dutch fiscal unity regime, ‘emergency measures’ were retroactively enacted as of 1 January 2018. Based on these ‘emergency measures’, certain provisions in the Dutch CITA will apply as if there was no fiscal unity, despite the presence of a Dutch fiscal unity. These provisions include the application of the rules on ‘the deduction of interest on loans that are directly or indirectly granted by a group company in order to finance an acquisition or capital contribution deduction’. The same holds true for elements of the participation exemption with respect to the portfolio investment participations and the ‘anti-mismatch’ rule, as well as for the limitation of the utilisation of losses after a change of 30 per cent or more of the ultimate control in a company and the effective reduction of dividend withholding tax payments in case of certain re-distributions of dividend. As of late 2020, the shaping of the future fiscal unity regime is being reconsidered by the Dutch government, with a decision to be made by a next government (at the earliest after the elections in March 2021).
The Netherlands pursues an active tax treaty policy in order to maintain and extend its wide tax treaty network. Most Dutch bilateral tax treaties are based on the Organisation for Economic Co-operation and Development (OECD) Model Tax Convention. The government has expressed mid 2020, that treaties with developing countries will be based on the United Nations (UN) Model Convention more often than was the case. The Netherlands has concluded bilateral tax treaties for the avoidance of double taxation on income and capital with over 90 countries worldwide. Per 1 July 2019, the multilateral instrument (MLI) has entered into force for the Netherlands. It first started to have effect on 1 January 2020.
Amendments to liquidation and cessation loss rules
As of 1 January 2021, the following regime will apply to Dutch corporate income taxpayers with regard to foreign liquidation losses (in the case of legal entities) and foreign cessation losses (in the case of permanent establishments):
- The liquidation loss provision would be applicable only:
- In EU/EEA situations, and
- with regard to interests of more than 50 per cent or interests giving rise to decisive influence on the participation’s activities.
- Cessation losses of permanent establishments (within the so-called object exemption) are also only deductible in EU/EEA situations.
Losses up to the amount of 5 million euro will remain deductible without above-mentioned limitations (this also applies to interests of 5 per cent or more and also for non-EU/EEA interests). In addition, the liquidation or cessation loss can only be taken into account if the liquidation or cessation is completed within three years of the activities stopped or the decision to stop them. This restriction applies regardless of the amount to be deducted. There is a three-year transitional period for unrealised liquidation losses incurred before 1 January 2021.
Conditional withholding tax on interest and royalty payments
Up to and including 2020, interest and royalty payments made by Dutch entities resident in the Netherlands were not subject to withholding tax in the Netherlands. As of 1 January 2021, a new conditional withholding tax on interest and royalty payments to affiliated companies in designated low-tax jurisdictions will be levied in certain situations. The withholding tax is, in principle, levied from the Dutch resident entity that makes interest or royalty payments at a rate equal to the highest rate of Dutch Corporate Income Tax in the current tax year. For 2021 this rate is 25 per cent. The withholding tax rate may however be reduced by a tax treaty.
This new withholding tax will only be levied on payments between affiliated companies. For purposes of this new withholding tax, an affiliated company is one that can - directly or indirectly - exercise a decision-making influence, in any event, if the shareholder has more than 50 per cent of the voting rights).
In principle, the tax is levied from the company that makes the interest or royalty payment and that withholds the withholding tax. However, if the withholding tax has not been applied correctly, the tax inspector may also issue an additional tax assessment to the recipient of the interest or royalty payment or even the director of the paying company. The withholding tax applies to payments made to companies in designated low-tax jurisdictions (i.e. jurisdictions with a statutory CIT rate of less than 9 per cent) or are on the EU list for non-cooperative jurisdictions. A Dutch list of low-taxed and non-cooperative jurisdictions is updated annually on the 1st of October, and becomes applicable the following year. Currently Listed Countries (both Dutch and EU and applicable as of 2021) are American Samoa, Anguilla, Bahama’s, Bahrein, Barbados, Bermuda, British Virgin Islands, the Cayman Islands, Fiji, Guam, Guernsey, Isle of Man, Jersey, Kuwait, Palau, Panama, Qatar, Samoa, the Seyschelles, Trinidad and Tobago, Turkmenistan, Turkish and Caicos Islands, US Virgin Islands, the United Arab Emirates, Vanuatu.
Apart from direct payments made to affiliated companies in Listed Countries, the withholding tax may also apply to abusive situations (situations where artificial structures are put in place with the main purpose or one of the main purposes to avoid the Dutch withholding tax).
Moreover, Dutch government is proposing to expand this tax type to dividend payments as of 2024, superseding any tax treaty. This proposal is to be on top of regular withholding tax on dividends and is currently in consultation only.
Emergency Measure for the Continuation of Jobs (NOW: Noodmaatregel Overbrugging Werkgelegenheid)
In order to prevent mass unemployment due to the COVID-19-pandemic, Dutch government has introduced a wage cost subsidy under the name of NOW. Employers with Dutch employees can request this subsidy in order to maintain employment. The amount of subsidy mainly depends on the decrease in turnover. The higher the amount of subsidy received, the stricter the third party assurance protocols are in effect. Employers who have received subsidy, and their (internationally registered) related parties, are in many cases not allowed to pay bonuses or dividends nor to buy back their own shares for a certain period in time.
Job-related investment discount (BIK: Baangerelateerde Investerkingskorting)
With this investment discount, both private and corporate entrepreneurs can, under certain conditions, offset part of their investments against their payroll taxes. For investments up to and including 5 million euros, 3.9 per cent of the investment can be deducted from the payroll taxes. For larger investments this deduction is 1.8 per cent for the part above 5 million euros. Investments fully paid for in 2020 are excluded from this discount. Please read more in our article: How do you take advantage of the Job-related investment discount
For more COVID-19 related measures, please see here.