Some measures are still subject to approval from the Senate. These are highlighted with an (*).
Implementation ATAD I: CFC rule*
The new CFC rules will apply in case a taxpayer directly or indirectly owns 50% or more in a so-called CFC. An entity or permanent establishment that is subject to a statutory tax rate on profits of less than 9% (initially a rate of 7% was proposed) can qualify as a CFC. In addition, the CFC qualification applies to an entity that resides in a jurisdiction listed on the EU list of non-cooperative jurisdictions. This measure aims to avoid profit shifting to foreign low-taxed entities or permanent establishments.
The first step is therefore to identify if a taxpayer owns 50% or more on a foreign entity and the second step is to identify if this foreign entity is low-taxed or residing in a jurisdiction on the list.
In case the CFC rule applies, a Dutch taxpayer will be taxed for certain income of the CFC in its Dutch tax base, even when this CFC income has not been distributed formally to the Dutch taxpayer yet. Items of qualifying income are for example interest, royalties and dividends.
Implementation ATAD I: earning stripping rule (interest deduction limitation)*
The 2019 Tax Plan introduced the earning stripping rule as a new interest deduction limitation. Under this rule, interest expenses exceeding 30% of the earnings before interest, taxes, deductions and amortizations (EBITDA) will be non-deductible for tax purposes. However, a threshold of EUR 1 million will be available, meaning that the first EUR 1 million of interest will in principle remain deductible even if this exceeds 30% of the EBITDA.
Updated loss carry forward rules*
Currently, losses can be carry forward for nine years and carried back for one year. This applies to both the substantial shareholders regime (income tax) and to corporate entities (corporate tax). For both types of taxpayers, it has been proposed to reduce the carry forward period to six years for losses incurred as per 2019. For existing losses, grandfathering law has been proposed.
Updated depreciation limit for real estate*
The 2019 Tax Plan also included an important change relating to the depreciation limit for real estate. Currently, taxpayers that own a building for their own use are allowed to depreciate this (gradually) to 50% of the so-called WOZ Value (value of property under the Valuation of Immovable Property Act). Once property has been depreciated to this value, no further tax depreciation is allowed.
Under the new rule, the depreciation limit will increase to 100% of the WOZ value as per 2019. This will have a significant impact. Transitional rules have been proposed for taxpayers that recently invested in properties (i.e. properties that have been depreciated for less than three years). Under these transitional rules, taxpayers that recently acquired properties may continue to depreciate their property under the current rules (limit of 50% of the WOZ value) until they completed three years of depreciation.
Going forward, it will therefore become even more important to review the WOZ value (issued annually by the municipality in a so-called WOZ decision (“WOZ beschikking“) and file objections when needed.
Updated 30% ruling duration*
The duration of so-called 30% rulings for expats will be decreased from eight years to five years. Initially, no transitional measures were included in the 2019 Tax Plan. However, in a recent update, transitional measures have been proposed for expats whose ruling would otherwise end during 2019 or 2020 due to the new measures.
In short, this has the following consequences for expats currently benefiting from a 30% ruling:
- expats whose ruling would end during 2019 or 2020 under the “old” regime will face no changes (i.e. the end date of the ruling remains the same);
- expats whose ruling ends during 2021, 2022 or 2023 under the “old” regime can benefit from the 30% ruling until 31 December 2020;
- expats whose ruling was issued under the “old” regime (i.e. validity of eight years) and which ruling initially would end during or after 2024, will face a decrease of the duration of their ruling to five years.
Brexit
The UK will leave the EU as per 30 March 2019. The conditions and new agreements are currently still discussed, but Brexit may potentially have impact, for example in relation with custom duties. Intaxify will share an update once more information is available.
