The Dutch government published its 2021 budget on 15 September 2020. The tax measures were largely as anticipated and, where corporate taxes are concerned, will generally result in an increase of the tax burden on multinational businesses.
The 2021 budget is the last budget of the third coalition government led by prime minister Mark Rutte. National elections are scheduled to take place on 17 March 2021. At the beginning of the Rutte era, many predicted that the multinational business community's tax interests would be protected by a government led by the right-wing liberal party. As the government is nearing the end of its term, however, that appears to have played out differently.
Forced by international developments (OECD/BEPS), as well as the changed political and public perception of the multinational businesses' contribution to society (tax and otherwise), successive Rutte governments have had to enact legislation that was not always regarded favourably by businesses. With the impact of the COVID-19 crisis on government finances as an additional factor, the 2021 budget is no exception to this trend.
Here are the main tax measures that will affect multinational businesses in 2021 and beyond.
Tax rate increases
The top corporate tax rate will stay at 25% instead of being reduced to 21.7%, as set out in the 2019 budget. (The government will, however, go ahead with the reduction of the tax rate in first bracket to 15%.)
Income from R&D activities will be taxed at 9% (up from the current 7% rate).
Three measures are introduced to compensate for the budgetary effect of a Dutch Supreme Court ruling that interest on Additional Tier 1 capital instruments is deductible. The minimum capital for banks will increase from 8% to 9% (below this threshold, interest is not deductible). AT1 capital will be treated as debt when calculating minimum capital. For 2021 only the bank levy will increase from 0.044% to 0.066% (short-term debt) and from 0.022% to 0.044% (long-term debt).
The transfer tax rate for commercial real estate will increase from 6% to 8%, instead of to 7%, as initially announced.
Restrictions on the use of NOLs
A proposal will be submitted providing that, as of 2022, the amount of net operating losses that may be offset will be limited to 50% of the taxable profit in excess of EUR 1 million; these net operating losses may be carried forward indefinitely (currently, the carry forward is limited to six years).
Taxpayers will be allowed to form a tax reserve in 2019 for losses expected in 2020.
Enterprises making capital investments will be allowed to credit a yet to be determined percentage of the investment costs against wage tax withheld from salaries paid to employees.
A carbon emissions tax will be introduced at a rate of EUR 30 per tonne in 2021, increasing to EUR 125 per tonne in 2030.
Currency gains and negative interest on debt will be taxable where the interest on the debt is not deductible under article 10a of the Corporate Tax Act 1969.
Announcement of future initiatives
In the spring of 2021, the government will submit a bill adjusting the application of the arm's length principle: a downward adjustment of taxable income will only be allowed if there is a corresponding taxable pick-up elsewhere. This measure is part of the government's efforts to combat aggressive tax planning and is likely to significantly limit the attractiveness of "informal capital" structures. These have mainly been employed by US multinationals to shelter income from valuable intangibles from current taxation.
The government will launch a study on measures aimed at treating debt and equity more equally for tax purposes by introducing a notional deduction on equity, to be financed by a further limitation of the deductibility of interest on debt.
In response to the Sofina judgment of the European Court of Justice, Dutch dividend withholding tax incurred by Dutch corporate taxpayers in excess of corporate income tax actually due, will no longer be refundable as of 2022. Excess dividend withholding tax may be carried forward as a credit to future years. In anticipation of and deviation from this measure, a temporary decree will be introduced that will allow foreign companies to apply for a refund of the Dutch dividend withholding tax charged in excess of their foreign corporate income tax due.