The (tax) plans for the coming year were officially announced on Budget Day 2021. Mazars has listed the most important (tax) proposals from the tax package for the upcoming calendar year. What do these proposals mean for your business?
Adjustment of corporate income tax bracket
The following tax rates (and brackets) are proposed to be amended:
As of January 1, 2022 the width of the first tax bracket will be broadened from €245,000 to €395,000. This should result in a corporate tax rate of 15% on the first €395,000 in profit and a tax rate of 25% for the remainder of the profit. Furthermore, there are no indications that the tax rates and/or threshold will be amended after 2022 at this moment.
Adjustment of loss compensation rules as of January 1, 2022
The Dutch Ministry of Finance announced in the previous tax package that there will be a separate proposal to adjust the current loss compensation rules. The proposal introduces an unlimited period for losses to be carried forward as of 1 January 2022 (currently limited to six years). The proposal does not entail an adjustment of the current carry back period of losses, which is one year. However, all losses (both carry forward and carry back) can only be settled up to €1 million of taxable profits. When the taxable profit of an entity exceeds €1 million, the losses can only be settled in that year up to an amount of €1 million, plus 50% of the taxable profit above €1 million. The proposal has been converted into legislation in May 2021 and will enter into force on 1 January 2022.
Limitation on settlement of dividend tax and gambling tax (Sofina case)
This proposal discusses the limitation of the settlement of dividend tax and gambling tax with corporate income tax. The proposal stems from a ruling ("Sofina case") of the European Court of Justice. The settlement of dividend tax and gambling tax will be limited to the amount of corporate income tax due in that year. Under certain conditions, any unsettled withholding taxes can be carried forward to later years. This proposal will also have an impact in the event of forming or disbanding a Dutch fiscal unity and in the event of mergers and demergers.
The proposal will enter into force on January 1, 2022.
Extension of the anti-abuse measure for hybrid mismatches (ATAD2)
As of January 1, 2020, a number of anti-avoidance tax corporate measures entered into force to combat hybrid mismatch arrangements. A hybrid mismatch arrangement may occur due to conflicting tax rules between two or more jurisdictions whereby the same payment is deducted twice for tax purposes or the same payment is deducted in one jurisdiction without inclusion/taxation in the other jurisdiction. As of 1 January 2022 these anti-avoidance rules are proposed to be extended to reverse hybrid entities.
A reverse hybrid entity is an entity that is considered transparent for Dutch tax purposes, but considered non-transparent according to foreign tax purposes. Without the proposed extension, a situation of double non-taxation may arise if for instance the Netherlands incorrectly assumes that the income of the hybrid entity will be taxed at the level of the participating parties behind the hybrid entity, while the jurisdiction where the participating parties behind the hybrid entity are established assumes that the income is taxed at the level of the hybrid entity itself. The proposal contains an exception for collective and alternative investment funds.
Adjustment conditional withholding tax on interest and royalties
As per January 1, 2021, the Netherlands has implemented a conditional withholding tax on certain royalty and interest payments. This withholding tax applies to payments made by entities established in the Netherlands or by Dutch permanent establishments of foreign entities to affiliated entities established in low-tax (profit tax rate less than 9%) jurisdictions or non-cooperative jurisdictions, in certain hybrid mismatch situations and in abusive situations.
Based on the proposal, withholding tax will also be levied on interest and royalty payments to entities in low-tax or non-cooperative jurisdictions, to the extent that the interest and royalty payments are attributable to specific Dutch sources, such as real estate located in the Netherlands.
Adjustment of anti-abuse measure for Controlled Foreign Companies (CFC)
This anti-abuse measure, which is already in force, aims to prevent the (artificial) shifting of profits to foreign entities that are low-taxed (profit tax rate less than 9%). In such cases, this measure taxes part of the foreign low-taxed profits in the Netherlands. Under certain conditions, the foreign profit tax can be settled with Dutch corporate income tax. The adjustment of this rule relates to the order in which this settlement must take place.
Prevention of transfer pricing mismatches
Under current Dutch tax legislation, Dutch taxpayers should comply with the at arm’s length principle, meaning that transactions between related parties should reflect conditions that would have been agreed between unrelated parties under similar circumstances. Dutch taxpayers are required to adjust their transfer prices in accordance with the at arm’s length principle. In international context, a transfer pricing mismatch may occur as jurisdictions apply the arm’s length principle in different ways.
In order to combat the avoidance of (Dutch) corporate income tax resulting from transfer pricing mismatches, the Dutch government proposed to neutralize these differences (commonly referred to as informal capital structures). Under the proposal, an upward correction under the at arm’s length principle may be limited to the extent that the foreign entity does not take a corresponding upward correction into account. The proposed measures aim to combat double non-taxation due to transfer pricing mismatches.
Proposal for the qualification of foreign legal forms
The Proposal to adjust the tax qualification policy for foreign legal forms was not published on Budget Day. Earlier this year, the draft proposal proposed to abolish the independent corporate tax liability for Dutch open limited partnerships (in Dutch: open besloten vennootschappen). The proposal prescribes that all existing open limited partnerships will be regarded as tax transparent for Dutch tax purposes. Consequently, the assets and debts of the tax transparent open limited partnership would be directly allocated to the limited partners in proportion to each partner's entitlement.
The intended adjustments to the tax qualification policy of (foreign) legal forms were initially planned to form part of the tax package with an intended effective date of January 1, 2022. However, considering the many substantive responses during the recently concluded internet consultation, the State Secretary for Finance has decided to uphold the measures to figure out where and to what extent the responses can be incorporated into the proposal.
It is expected that this proposal will be presented in the winter of 2021/2022.
Would you like find out more about the Proposal? You can read about it in the article recently published by Mazars entitled ‘Bill to amend tax qualification policy on legal forms’.
Proposal on information exchange digital platforms (DAC7)
The DAC7 proposal was not published on Budget Day. This proposal concerns the automatic exchange of information for operators of digital platforms. Earlier this year, it was announced that European digital platforms would be required to report revenues from products and services on their digital platforms to the tax authorities from 1 January 2023. Subsequently, national tax authorities are obliged to automatically share this information with the other European Member States.
This measure aims to combat tax evasion by operators of digital platforms. Operators of digital platforms tend to not always report their earnings, especially if those earnings were made on a platform based in another jurisdiction. Such operators therefore have an unfair competitive advantage over traditional traders and European Member States lose out on tax revenues. DAC7 must be implemented in the Netherlands and in other EU Member States by 31 December 2022 at the latest. In 2024, digital platforms must report for the first time over the year 2023.
The DAC7 proposal is expected to be presented in the spring of 2022.
Webinar Budget Day 2021
On Wednesday 22 September 2021, Mazars organized a webinar in which an update was provided on the most important outcomes and measures of Budget Day 2021. If you were not able to attend the webinar live, you can rewatch part of the webinar at the bottom of this page.
Want to know more?
Would you like to know more about the 2022 Tax Plan, the proposed changes and what this means for you? Then please contact Eric Klein Hesseling by email or by phone: +31 (0)6 51 52 81 01 or Erik Stroeve by email or by phone: +31 (0)6 51 24 45 30. They will be happy to help you.