Topics of this summary are:
- Amendment to improve the participation exemption as of 1 January 2010;
- Other corporate and related tax measures as of 1 January 2010;
- Announced corporate tax measures for 2010/2011;
- Implementation of the 2010 EU VAT Package;
- Tax treaty update;
- Proposed 2010/2011 corporate law amendments.
Amendment to improve the participation exemption as of January 1, 2010
Current regime
Under 2009 Dutch tax law, investments in a 'low-taxed passive investment subsidiary' are not subject to the participation exemption. For this, two requirements had to be met simultaneously:
- The 'assets test': more than 50 percent of the direct and indirect (lower tier) subsidiaries are of a passive nature;
- The 'subject-to-profits-tax test': the effective profits tax rate, calculated on the basis of Dutch tax principles is less than 10 percent.
The 'motive test'
The 2010 amendment reintroduces the pre-2007 motive test, although in a slightly amended form. Under the new rules, the participation exemption will not apply to domestic and foreign subsidiaries (in which an interest of at least five percent is held) which are held as passive investments (if the taxpayer’s objective is to obtain a return that may be expected from normal active asset management). In the event that the taxpayer has both an active and a passive motive for investment in a subsidiary, the predominant motive is decisive.
A subsidiary is not held as a passive investment if the subsidiary is operating in the same line of business as the taxpayer. The subsidiaries of a 'top holding company' with active management function and subsidiaries (engaged in business) of intermediate holding companies will not be considered as passive investments.
The motive test is not fulfilled if more than half of the subsidiaries’ consolidated assets consist of shareholding(s) of less than 5 percent or if the function of the subsidiaries (or its lower tier subsidiaries) acts as a passive group finance- or group licensing company.
Slightly amended 'subject-to-profits-tax test' and 'assets test'
In the event that the new 'motive test' is not met, the participation exemption still applies if either the amended 'subject-to-profits-tax test' or the amended 'assets test' is met.
The new 'subject-to-profits-tax test' requires that the subsidiary is subject to a 'realistic levy', based on Dutch corporate tax principles with a statutory tax rate of at least 10 percent. Tax base differences caused by tax holidays, tax deferral until profit distributions are made, and a significant broader foreign participation exemption regime, do not qualify, whereas deviations from different depreciation rules, special investment deductions, loss compensation rules or tax consolidation rules do qualify.
With regard to the 'assets test' the following investments do not qualify as passive investments as of January 1, 2010: real estate, assets used in active leasing business and assets subject to a profits-based tax resulting in a 'realistic levy'. As is the case under current law, intra-group receivables from active group finance companies or receivables financed for 90 percent or more by third party debt, or subject to a 'realistic profits-based tax levy' do not qualify as being passive.
In the event that the participation exemption does not apply, a tax credit system still applies.
Other corporate and related tax measures as of January 1, 2010
The 2010 corporate tax rate
The general 2010 corporate tax rate amounts to 20 percent of the first EUR 200,000 taxable profit and 25.5 percent for profits exceeding that amount.
Innovation box (previously: patent box)
As of January 1, 2010, the nominal tax rate on income from patented intangibles developed by the taxpayer will be reduced from 10 percent to five percent. Other new measures include an unlimited size of the innovation box and operational losses becoming deductible against normal rates (20 percent - 25.5 percent), subject to recapture upon profits realised.
Optional loss carry back of three years
Regarding 2009 and 2010 losses, an optional carry back period of three years (2008: one year) will be introduced. Two limitations apply:
- The loss carry forward period upon election is limited to six years (2008: nine years);
- The maximum amount of loss carry back to the second and third preceding year is limited to EUR 10 million per year.
Dividend withholding tax
Dividends paid to parent companies resident in the EEA Member States Norway and Iceland holding an interest of at least five percent in a Dutch subsidiary are exempt from Dutch dividend withholding tax as of June 11, 2009.
Significant increase of fines
As of January 1, 2010, the fines for several administrative requirements under Dutch tax law will increase significantly. For instance, the fine for failing to file or late filing of the corporate tax return will be EUR 2,460 (2009: EUR 567). A maximum fine of EUR 4,920 (2009: EUR 1,134) will be imposed for repeated offences.
Announced corporate tax measures for 2011
As of January 1, 2011, the abovementioned maximum fines will also apply to late (or non-) payment upon tax returns (e.g. VAT, wage tax) or late payment (or non-) payment of (corporate) tax assessments.
On December 5, 2009 the State Secretary of Finance sent a letter to Parliament announcing the following four measures:
- A proposal to limit excessive interest deduction for acquisition holdings in the event the debt/equity ratio of the fiscal unity between the acquisition holding and the target company exceeds a certain ratio (yet to be determined);
- A proposal to the effect that permanent establishment losses are no longer deductible except for losses realised upon termination;
- A further study regarding a mandatory group interest box subject to a nominal five percent tax rate, which means that plans will be postponed;
- A new study to neutralise the tax treatment of equity financing versus debt financing.
Implementation of the 2010 EU VAT package
As of January 1, 2010 the main rule for the supply of services provided between two VAT entrepreneurs resident within two EU Member States is changed to the principle that VAT is due in the country where the recipient of the services is established (the reverse charge).
The VAT package introduces an intra-EU reporting obligation (IC listing) of the services per recipient to which the reverse charge applies (except for where the supply is exempt in the other EU Member State).
As a result of EU harmonisation, as of January 1, 2010 the moment at which VAT is payable in the Netherlands for service supplies to which the reverse charge applies is changed to the moment the service is completed (2009: the moment the service is invoiced).
Furthermore, the VAT package includes a simplified electronic EU VAT reclamation procedure in other Member States.
Tax treaty update
In 2009, The Netherlands concluded several tax information exchange agreements (TIEAs) and protocols to existing tax treaties for the purpose of exchanging information for tax purposes.
As of January 1, 2010, new tax treaties signed with Bahrain and Qatar and a protocol to the treaty with Mexico (amending the right to levy capital gains tax and the tax residence paragraph for dual resident companies) came into force.
During 2009, revised or new treaties were concluded with Azerbaijan, Barbados (amending the dividend article), Japan (including the introduction of a limitation of benefits clause and further reduction of withholding tax on dividend-, interest- and royalty payments), Oman, Saudi Arabia and the United Kingdom (including amendments to the tax residence paragraph for dual resident companies).
Along with the tax treaty signed in 2008 with the United Arab Emirates, these treaties are not expected to enter into force before January 1, 2011.
Finally, the State Secretary of Finance announced the submission to Parliament of a revised policy for the concluding of tax treaties in the first half of the year 2010.
Corporate law update
In December 2009, the Lower House of Parliament adopted several corporate law proposals, of which the most important are:
The bill to amend the law on partnerships
Key proposals are:
- The difference between business and profession will disappear;
- A new differentiation between the non-public partnership ('stille vennootschap') and the public partnership ('open vennootschap of OV'). A public partnership (OV) or a limited or general partnership (CV) may acquire legal personality by incorporation and become an OVR or CVR;
- An OV(R) or CV(R) will continue to remain tax transparent in The Netherlands except in case of open accession.
Legal proposal on simplifying limited liability companies (B.V.) law
Among the proposals is the abolition of the minimum capital of EUR 18,000 and, as a consequence thereof, the banker’s opinion at the time of incorporation, the auditor’s opinion at the time of the payment on shares, the regulation pertaining to transactions with shareholders after the stage of incorporation (Nachgründung), the regulation to forbid granting of financial support to third parties.
A distribution test will safeguard creditor protection which implies a shareholders’ and director’s liability for all forms of payment of equity to shareholders.
The introduction of a separate implementation Act may prompt further changes.
The bill to implement a one-tier board and new rules to avoid conflict of interest between the managing director’s personal interest and the company’s interest (‘tegenstrijdig belang’).
The bill on the abolition of the declaration of non-objection at incorporation.
A system of continuous monitoring will replace the preventive declaration of non-objection.
Because the Upper House of Parliament still has to adopt the corporate law bills and several bills require an accompanying implementation Act, we do not expect these bills to enter into force before July 1, 2010 or possibly January 1, 2011.