On June 3, 2022 the Dutch Secretary of State for Finances and Taxes sent the tax policy and implementation agenda to the House of Representatives. In this agenda, the Secretary of State discusses his priorities for implementation and policy for this cabinet term. One of the annexes to this implementation agenda is the annex titled: “Tax legislation with matrix” (Fiscale wetgeving met matrix). In this nineteen page long annex the Secretary of State gives a short high-level description of the legislation proposals he expects to send the House of Representatives over the course of the next twelve months. Below we will shortly discuss some of the items the Secretary of State discusses in the annex.
Legislative proposal for an adaptation of the qualification of foreign legal forms
For the purposes of Dutch taxation, the qualification of foreign legal forms currently takes place on the basis of the so-called legal form comparison method (rechtsvormvergelijkingsmethode). In this method, certain civil law characteristics of a body established under foreign law are compared with those of existing Dutch bodies, such as the public limited liability company (NV), the private limited liability company (BV), the cooperative (coöperatie), the association (vereniging), the foundation (stichting), or the limited partnership (CV). Subsequently, the respective foreign body is in principle treated in the same way as a Dutch body with a comparable legal form is treated. In recent years, the practice has repeatedly criticized the Dutch qualification policy regarding (foreign) legal forms. In this respect, in particular attention is being drawn to the so-called permission requirement for the tax qualification of the CV, whereby certain bodies established under foreign law and comparable to a CV are regarded as non-transparent for Dutch tax purposes, while in the jurisdiction of establishment they are regarded as transparent for tax purposes.
Such difference is qualification can result in a double deduction, double taxation or a deduction without a corresponding taxation (hybrid mismatches). The undesired consequences of the difference in qualifications (double deduction or a deduction without a corresponding taxation) are being combatted with anti-abuse measures (ATAD2).
According to the Secretary of State the Dutch Government intends to send a bill for approval to the House of Representatives in the spring of 2023. The bill will contain proposals for amendments to the qualification policy used for (foreign) legal forms which among other things aim at preventing that differences in qualification arise. The bill addresses the cause of so-called hybrid mismatches by adjusting the qualification policy. According to the Secretary of State the bill therefore does not aim to tackle tax avoidance by means of differences in qualifications between countries (something ATAD2 aims at). However, as a result of the bill, in many cases such anti-abuse measures are no longer to be applied (both in the Netherlands as well as in other countries) because the difference in qualifications disappears.
In short, the measures contained in the bill consist of two parts:
1) codification of the current qualification policy and legal additions for non-comparable legal forms; and
2) abolishment of the permission requirement and thus the end of the corporate tax liability of open limited partnerships (CV), with accompanying transitional law. In particular this permission requirement for the tax qualification of foreign entities that are comparable to the CV, that is unique for the Netherlands, leads to qualification differences.
These changes will also affect the individual income tax, the corporate income tax, the dividend withholding tax, withholding taxes, the inheritance and gift tax and the real-estate transfer tax. The Dutch Government aims to have the amendments to enter into force on January 1, 2024.
Exchange of info on crypto assets and the implementation of the Two-Pillar solution
In the annex the Secretary of State the also touches base with respect to the exchange of information on crypto assets and the implementation of the Two-Pillar solution. With respect to both matters the Secretary of State notes that for topics he is anxiously awaiting EU Directives, so that he can come with proposals for Dutch legislation.
With respect to the exchange of information the on crypto assets the Secretary of States notes that he expects the European Commission to come with a proposal for a Directive (DAC8) in the autumn of 2022.
With respect to the implementation of the OECD’s Two-Pillar solution the European Commission came with a proposal for a Council Directive in December 2021. As you might know discussions regarding this proposal are still ongoing in the Council of the EU.
Limitation of the so-called 30% Allowance
Under conditions employees that come from another country to the Netherlands can receive 30% of their wages tax exempt. Until now no maximum cap applies to the amount of wages over which such employee can receive this tax exempt 30% Allowance. The Dutch Government however intend to introduce a maximum amount of wages over which these employees can receive the tax exempt 30% Allowance. As of 2023 the Dutch Government intends the amount of wages over which a qualifying employee can receive the 30% Allowance to the amount mentioned in the Wet normering topinkomens. A transitional arrangement will be put in place.
The tax base for withholding tax and for dividend withholding tax will be expanded with remunerations for capital contributions
In the Collective Tax Act 2023 (Fiscale verzamelwet 2023), it is proposed that certain remunerations for capital contributions are to be subjected to the levying of dividend withholding tax. This is in line with the tax base as used for Dutch corporate income tax purposes, where such remunerations are not deductible. The background to this measure is that if a remuneration is not deductible for corporate income tax purposes because the remuneration qualifies as a remuneration for a capital contribution, this justifies the levying of Dutch dividend withholding tax.
In addition to the proposals included in the Collective Tax Act 2023, these remunerations for capital contributions will be explicitly included in the article in which the object of taxation is described in the Dutch Dividend withholding tax Act 1965. This has inadvertently not been included in the Collective Tax Act 2023. In addition, it is proposed to also expand the taxable object with the aforementioned remunerations for capital contributions (insofar as it relates to benefits in the form of dividends) in the 2021 Withholding Tax Act.
Expansion of the definition of withholding agent for Dutch dividend withholding tax purposes
The 2021 Withholding Tax Act contains its own definition of the term 'withholding agent'. This term is interpreted slightly differently for interest and royalty payments on the one hand and dividends on the other. It is proposed to as of January 1, 2024 expand the scope of the concept of withholding agent for dividends in the 2021 Withholding Tax Act with:
1) Foreign entities; and
2) Reverse hybrid entities.
Ad 1 – Foreign entities
The term withholding agent for interest and royalties includes a residual category: entities established under foreign law that have a legal form comparable to entities established under Dutch law are also required to withhold withholding taxes. Such a residual category has inadvertently not been included for dividends. This is regulated in the proposed amendment.
Ad 2 - Reverse hybrid entities
ATAD2 came into effect on January 1, 2022. Based on that measure, so-called reverse hybrid entities are subjected to Dutch corporate income tax. Such entities also fall under the concept of withholding agent for the withholding taxes on interest and royalty payments. With the proposed amendment, this will also be arranged for the concept of withholding agent as applying to the Dutch dividend withholding tax.
The full text of the Fiscale wetgeving met matrix (unfortunately only available in the Dutch language) can be downloaded here.
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