CONTRACT SI2.ICNPROCE

Transcription

1 CONTRACT SI2.ICNPROCE IMPLEMENTED BY FOR DEMOLIN, BRULARD, BARTHELEMY COMMISSION EUROPEENNE - HOCHE - - DG ENTREPRISE AND INDUSTRY - Study on Effects of Tax Systems on Retention of Earnings and Increase of Own Equity Jean ALBERT Team Leader - ANNEX THE NETHERLANDS - - COUNTRY REPORT - Submitted by Eric J.H. VERMEULEN Country Expert February 15,

2 THE NETHERLANDS Mazars Paardekooper Hoffman N.V. Eric J.H. Vermeulen Rivium Promenade LM Capelle aan den IJssel The Nerlands Tel INTRODUCTION Mazars was successful in obtaining European Commission project Effects of Tax Systems on Retention of Earnings and Increase of Own Equity. The context of Project is SME health, competitiveness and growth. These are hindered by weak own equity base of many companies in Europe and difficult access to finance that SMEs face. In The Nerlands, most common manner to run an enterprise is to run it by a corporation, which run ir business with ir whole equity. When a corporation will realise a profit, this company will have to pay 25,5% Corporate Income Tax. After that, company might wish to pay out dividend. In case corporation will pay out dividend, business owner (most of times one shareholder) will have to pay 25% income tax (in %). Distribution of earnings is not advantageous because it will thus lead to double taxation. Retention of earnings does postpone individual Income tax duty. Or examples to lower tax burden in a year are depreciation of assets, making reservations for provisions and use of valuation rules. 2

3 PART 1 GENERAL QUESTIONS 1. What are main characteristics of tax systems applicable on enterprises and business owners in your Country (corporate income tax, income tax, capital gains tax, or profit based taxes, capital based taxes, or taxes )? Most businesses in The Nerlands are run by corporations, which run ir business with ir whole equity. When a corporation will realise a profit, this company will have to pay 25,5% corporate Income tax. If company pays out dividend, business owner will have to pay 25% income tax (in % and 25% above EUR ) if he holds at least 5% of shares of corporation. There is no specific capital gains tax, capital gains are taxed eir with corporate income tax, orwise with individual income tax (maximum 52%). Capital gains will be taxed with corporate income tax when corporation will realise a capital gain (as a result of transfer of business assets). Capital gains will be taxed with individual income tax when business owner will transfer his shares in corporation (25%) or if he transfers business assets as sole trader or in case of a partnership (maximum 52%). Distribution of earnings is not advantageous. Retention of earnings does postpone individual Income tax duty. Therefore it might be better to wait before to pay out dividend. 1.1 Corporate Income What are general principles for computation of taxable profits? For purposes of corporate income tax, first thing what should be determined is wher company (a Small or Medium sized Enterprise) has its principal place of business in The Nerlands 1. In case company has its principal place of business in The Nerlands, Dutch taxadministration will tax company for its results. 3

4 After determination that company has its principal place of business in The Nerlands, second thing what should be determined is which results are subject to corporate income tax. The Corporate Income Tax Act 1969 contains a provision in article 8, which refers to Income Tax Act The profit of a company, liable for corporate income tax, should be determined in accordance with this Income Tax Act As a result, amount of profit should be assessed in accordance with sound commercial practice. Sound commercial practice is a vague term, however, following remarks can be made. The term leaves enterprise a high degree of freedom to choose its own system to calculate its yearly profit. Sound commercial practice requires consistent accounting principles. The term sound commercial practice has been introduced in However, a general definition which includes all descriptions of sound commercial practice and which is applicable at any time, has not been made What are main differences between tax balance sheet and commercial balance sheet? For determination of taxable result, starting point of tax balance sheet is commercial balance sheet. Therefore, in general, tax balance sheet and commercial balance sheet are equal. However, re are some differences between balance sheets. First of all, valuation of participations is different in commercial and tax balance sheet. Participations are often valuated at netasset value in commercial balance sheet. In tax balance sheet, participations are valuated at cost price, unless socalled participation exemption is not applicable. Anor difference between commercial and tax balance sheet is that re are provisions to which company could contribute funds. In tax balance sheet, some of se provisions do not exist however or are 1 Article 2, paragraph 1, under a, Corporate Income Tax Act 1969 (=Vpb) 2 J.A. Fray Weekblad voor Fiscaal Recht 1955/4270 4

5 part of fiscal equity. Examples of se provisions are deferred tax liabilities, provisions for maintenance and vacancy. A difference between tax balance sheet and commercial balance sheet is also that business assets do not have to be valuated in same way in different balance sheets. As a result, business assets can have different values in tax balance sheet and in commercial balance sheet. For example, Supreme Court decided already in 1954 that a business owner does not have to follow commercial figures for tax purposes regarding valuation of stocks. 3 Finally, period in which company depreciates its business assets is sometimes different according to commercial rules than it is according to tax rules. This also results in different amounts of business assets in commercial and tax balance sheet What are most important adjustments for computation of taxable profits/taxable gains on base of accounting profits? The most important adjustments for computation of taxable profits/taxable gains on base of accounting profits are provisions that are inserted in commercial balance sheet and should be eliminated in tax balance sheet because y are not admitted for tax purposes. Examples of such provisions are mentioned under 1.2. Anor important adjustment for computation of taxable profits/taxable gains is that profit and loss account shows an amount of corporate income tax due. The profit and loss account for tax purposes does not show such an amount. 3 HR 17 March 1954, nr , BNB 1954/128 5

6 1.2 Income What are general principles of income taxation of business owners on business income, wages, distributed earnings, interest on loans and capital gain (sale of shares)? Business owners are generally not taxable for business income, unless y are sole traders or partnership in which y participate is transparent for tax purposes. In that case results of company are taxable results of business owner and will be taxed with income tax 4. If partnership is not transparent or a company drives business, company itself will be taxed for its results 5. If business owner is receiving a salary from corporation, this salary is subject to wage tax. The maximum rate of wage tax is 52% 6. Salaries are deductible from profits of corporation. The treatment of distributed earnings can be described as follows. If individual business owner holds a substantial interest in a corporation (5% or more of shares) 7, and corporation distributes earnings to business owner, earnings are taxable with 25% 8 income tax (Box 2). It does not matter wher this corporation has its principal place of business in The Nerlands or in anor country. If interest is less than 5%, distributed earnings will not be taxable directly. However, at end of year, business owner will have to declare amount of certain of his assets (including shares, bank savings and amount of earnings) minus certain debts (Box 3). The taxable result of Box 3 is equal to 4% 9 of average of this amount and amount of assets minus debts at beginning of year. The calculated (fictitious) result is taxable at a rate 4 Article 3.2 Income Tax Act Article 2, paragraph 1 under a Corporate Income Tax Act Article 20a Wage Tax Act Article 4.6 Income Tax Act Article 2.12 Income Tax Act Article 5.2 Income Tax Act

7 of 30% 10, refore effectively 1,2% (30% of 4%) of net wealth has to be paid annually. In case business owner will receive interest on a loan, granted to his own corporation, received interest will be taxed progressively in Box The maximum rate that is applicable is 52%. The corporation can deduct interest paid as costs however. Capital gains arising from transfer of shares, held by business owner can be treated in two different ways, depending on percentage of shares held by business owner. If percentage of shares held by business owner is at least 5%, capital gain realised will be taxed at 25% (Box 2). If interest held is less than 5%, capital gain will not be taxed directly but via Box 3 system as mentioned before Is re a different tax treatment for income from different income sources? As of 1 January 2001, The Nerlands has a new tax system with regard to individual income tax. The individual income tax (inkomstenbelasting) is an annual tax imposed under Individual Income Tax Act 2001 (Wet inkomstenbelasting 2001, IB). For individuals, tax year is equal to calendar year and income of an individual should be classified into one of three boxes. Each type of income in each Box must be calculated separately. Each Box has a different income calculation and a different tax rate applies for each Box. The Individual Income Tax Act 2001 knows three categories (Boxes): earned income and income from owner-occupied dwellings (belastbaar inkomen uit werk en woning) - taxed at progressive rates (maximum 52%); capital gains and or income from a substantial shareholding in a company (belastbaar inkomen uit aanmerkelijk belang) - taxed at 25%; and income from savings and investments (belastbaar inkomen uit sparen en beleggen) (equal to 4% of average amount of assets and debts at 10 Article 2.13 Income Tax Act

8 beginning and end of year. The calculated result is taxable at a rate of 30%, refore effectively 1,2% (30% of 4%) of net wealth. These abovementioned categories are referred to as Box 1, Box 2 and Box 3 income respectively. Depending on source of income, income will thus be treated differently for tax purposes. 1.3 Capital The RELEVANT TAX PROVISIONS AND SUBSEQUENT CHANGES FOR CORPORATIONS Nerlands Table Corporate tax 1. Tax rate Standard 34,5% 34,5% 34,5% 31,5% 29,6 Reduced 29% 29% 29% 27% 25,5% Minimum Tax Special Rates Results of Results of Results of Results of Results of Investment Investment Investment Investment Investment institutions will be taxed at a rate of 0%. institutions will be taxed at a rate of 0%. institutions will be taxed at a rate of 0%. institutions will be taxed at a rate of 0%. institutions will be taxed at a rate of 0%. Non profit tax (local tax on corporations, energy tax ) 2. Tax accounting rules Municipalities are allowed to levy taxes in accordance with Municipality law. Without postponement, an annual return for corporate income tax should be filed before 1 June of subsequent year. Municipalities are allowed to levy taxes in accordance with Municipality law. Without postponement, an annual return for corporate income tax should be filed before 1 June of subsequent year. Municipalities are allowed to levy taxes in accordance with Municipality law. Without postponement, an annual return for corporate income tax should be filed before 1 June of subsequent year. As of Municipalities are allowed to levy taxes in accordance with Municipality law. Without postponement, an annual return for corporate income tax should be filed before 1 June of subsequent year. As of Municipalities are allowed to levy taxes in accordance with Municipality law. Without postponement, an annual return for corporate income tax should be filed before 1 June of subsequent year. As of 11 Article 3.92 Income Tax Act

9 The RELEVANT TAX PROVISIONS AND SUBSEQUENT CHANGES FOR CORPORATIONS Nerlands Table tax year 2004, tax year 2004, tax year 2004, annual returns annual returns annual returns for corporate for corporate for corporate income tax income tax income tax should be filed electronically. should be filed electronically. should be filed electronically. 3. Depreciation Basis Cost price Cost price Cost price Cost price Cost price Methods Linear Degressive Progressive Linear Degressive Progressive Linear Degressive Progressive Linear Degressive Progressive Linear Degressive Progressive Rates Accounting In accounts In accounts In accounts In accounts In accounts Intangibles Possible, intangible Possible, intangible Possible, intangible Possible, intangible Possible, intangible assets are assets are assets are assets are assets Non depreciable assets 4. Provisions Risks and futures expenses depreciated linearly most of times. In general, all business assets are depreciable. An exception is depreciation of land and portfolio investments. The Nerlands Supreme Court has decided in 1998 (Baksteencase, HR 26 August 1998, BNB 1998/409) that it is possible to allocate funds to a provision for risks and future expenses. Bad debts It is not possible to depreciated linearly most of times. In general, all business assets are depreciable. An exception is depreciation of land and portfolio investments. The Nerlands Supreme Court has decided in 1998 (Baksteencase, HR 26 August 1998, BNB 1998/409) that it is possible to allocate funds to a provision for risks and future expenses. It is not possible to depreciated linearly most of times. In general, all business assets are depreciable. An exception is depreciation of land and portfolio investments. The Nerlands Supreme Court has decided in 1998 (Baksteencase, HR 26 August 1998, BNB 1998/409) that it is possible to allocate funds to a provision for risks and future expenses. It is not possible to depreciated linearly most of times. In general, all business assets are depreciable. An exception is depreciation of land and portfolio investments. The Nerlands Supreme Court has decided in 1998 (Baksteencase, HR 26 August 1998, BNB 1998/409) that it is possible to allocate funds to a provision for risks and future expenses. It is not possible to are depreciated linearly most of times. In general, all business assets are depreciable. An exception is depreciation of land portfolio investments. and The Nerlands Supreme Court has decided in 1998 (Baksteen-case, HR 26 August 1998, BNB 1998/409) that it is possible to allocate funds to a provision for risks and future expenses. It is not possible to 9

10 The RELEVANT TAX PROVISIONS AND SUBSEQUENT CHANGES FOR CORPORATIONS Nerlands Table allocate funds allocate funds allocate funds allocate funds allocate funds to a provision to a provision to a provision to a provision to a provision in in order to in order to in order to in order to order to cover cover bad cover bad cover bad cover bad bad debts/debtors. debts/debtors. debts/debtors. debts/debtors. debts/debtors. However, for However, for However, for However, for However, for tax purposes it tax purposes it tax purposes it tax purposes it tax purposes it is possible to is possible to is possible to is possible to is possible to revaluate revaluate revaluate revaluate revaluate amount of amount of amount of amount of amount of debtors in debtors in debtors in debtors in debtors in tax tax tax tax tax balance balance sheet. balance sheet. balance sheet. balance sheet. sheet. Pensions It is possible It is possible It is possible It is possible It is possible for managing for managing for managing for managing for managing directors with directors with directors with directors with directors with a substantial a substantial a substantial a substantial a substantial interest in a interest in a interest in a interest in a interest in a Repairs 5. Losses Carry forward company to allocate funds to a provision for pension for him/his spouse. It is possible to allocate funds to a provision for repairs (article 3.53 IB). company to allocate funds to a provision for pension for him/his spouse. It is possible to allocate funds to a provision for repairs (article 3.53 IB). company to allocate funds to a provision for pension for him/his spouse. It is possible to allocate funds to a provision for repairs (article 3.53 IB). company to allocate funds to a provision for pension for him/his spouse. It is possible to allocate funds to a provision for repairs (article 3.53 IB). company to allocate funds to a provision for pension for him/his spouse. It is possible to allocate funds to a provision for repairs (article 3.53 IB). Unlimited in Unlimited in Unlimited in Unlimited in Unlimited in time. time. time. time. time. 12 Carry back Three years. Three years. Three years. Three years. Three years. 13 Transfer of Not possible as Not possible as Not possible as Not possible as Not possible as losses separate separate separate separate separate asset. If asset. If asset. If asset. If asset. If interest in an interest in an interest in an interest in an interest in an inactive inactive inactive inactive inactive company will change with at least 30% in comparison with oldest year with a loss, loss of company will change with at least 30% in comparison with oldest year with a loss, loss of company will change with at least 30% in comparison with oldest year with a loss, loss of company will change with at least 30% in comparison with oldest year with a loss, loss of company will change with at least 30% in comparison with oldest with a loss, loss of year 12 As of 1 January 2007, period for carry forward is 9 years. 13 As of 1 January 2007, period for carry back is 1 year. 10

11 The RELEVANT TAX PROVISIONS AND SUBSEQUENT CHANGES FOR CORPORATIONS Nerlands Table that year can that year can that year can that year can that year can not be set off not be set off not be set off not be set off not be set off against future against future against future against future against future profits. 14 profits. 15 profits. 16 profits. 17 profits Inventories Valuation rules FIFO, LIFO and Iron FIFO, LIFO and Iron FIFO, LIFO and Iron FIFO, LIFO and Iron FIFO, LIFO and Iron Allocation methods Personal Income tax Interest Income Inventories FIFO, LIFO and Iron Inventories Might be taxable in Box 1 at a maximum of 52%, orwise it will not be taxed. Inventories FIFO, LIFO and Iron Inventories Might be taxable in Box 1 at a maximum of 52%, orwise it will not be taxed. Inventories FIFO, LIFO and Iron Inventories Might be taxable in Box 1 at a maximum of 52%, orwise it will not be taxed. Inventories FIFO, LIFO and Iron Inventories Might be taxable in Box 1 at a maximum of 52%, orwise it will not be taxed. Inventories FIFO, LIFO and Iron Inventories Might be taxable in Box 1 at a maximum of 52%, orwise it will not be taxed. Dividends Employment income Capital gains tax Taxable at a rate of 25% if business owner holds a substantial interest in corporation. Orwise dividend will not be taxed directly. Employment income is taxable with individual income tax at a maximum rate of 52%. Taxable at a rate of 25% if business owner holds a substantial interest in corporation. Orwise dividend will not be taxed directly. Employment income is taxable with individual income tax at a maximum rate of 52%. Taxable at a rate of 25% if business owner holds a substantial interest in corporation. Orwise dividend will not be taxed directly. Employment income is taxable with individual income tax at a maximum rate of 52%. Taxable at a rate of 25% if business owner holds a substantial interest in corporation. Orwise dividend will not be taxed directly. Employment income is taxable with individual income tax at a maximum rate of 52%. Taxable at a rate of 25% if business owner holds a substantial interest in corporation. Orwise dividend will not be taxed directly. Employment income is taxable with individual income tax at a maximum rate of 52%. 14 Article 20A Corporate Income Tax Act Idem 16 Idem 17 Idem 18 Idem 11

12 The RELEVANT TAX PROVISIONS AND SUBSEQUENT CHANGES FOR CORPORATIONS Nerlands Table Sale of fixed The capital The capital The capital The capital The capital assets gain will be gain will be gain will be gain will be gain will be taxed with taxed with taxed with taxed with taxed with regular corporate regular corporate regular corporate regular corporate regular corporate income tax at income tax at income tax at income tax at income tax at a rate of a rate of a rate of a rate of a rate of 34,5% 19. No 34,5% 20. No 34,5% 21. No 31,5% 22. No 29,6% 23. No special tax is special tax is special tax is special tax is special tax is applicable. applicable. applicable. applicable. applicable. Timing rules In general capital gain will be taxed at moment it comes up, this is moment realization gain. of of In general capital gain will be taxed at moment it comes up, this is moment realization gain. of of In general capital gain will be taxed at moment it comes up, this is moment realization gain. of of In general capital gain will be taxed at moment it comes up, this is moment realization gain. of of In general capital gain will be taxed at moment it comes up, this is moment realization gain. of of An exception An exception An exception An exception An exception is is when is when is when is when when company will company will company will company will company will allocate allocate allocate allocate allocate realised capital gain realised capital gain realised capital gain realised capital gain realised capital gain into a reinvestment into a reinvestment into a reinvestment into a reinvestment into a reinvestment provision 24. provision 25. provision 26. provision 27. provision 28. Accounting There are no There are no There are no There are no There are no rules specific specific specific specific specific accounting accounting accounting accounting accounting rules for rules for rules for rules for rules for capital capital gains. capital gains. capital gains. capital gains. gains. Inflation N.A. N.A. N.A. N.A. N.A. Rates No specific corporate income tax No specific corporate income tax No specific corporate income tax No specific corporate income tax No specific corporate income tax 19 Article 22 Corporate Income Tax Act Idem 21 Idem 22 Idem 23 Idem 24 Article 3.51 Income Tax Act Idem 26 Idem 27 Idem 28 Idem 12

13 The RELEVANT TAX PROVISIONS AND SUBSEQUENT CHANGES FOR CORPORATIONS Nerlands Table rates apply for capital gains. rates apply for capital gains. rates apply for capital gains. rates apply for capital gains. rates apply for capital gains. Exemptions A capital gain A capital gain A capital gain A capital gain A capital gain realized by a realized by a realized by a realized by a realized by a transfer of transfer of transfer of transfer of transfer of assets does assets does assets does assets does assets does not not have to be taxed not have to be taxed not have to be taxed not have to be taxed have taxed to be immediately. immediately. immediately. immediately. immediately. Under certain Under certain Under certain Under certain Under certain circumstances it is possible circumstances it is possible circumstances it is possible circumstances it is possible circumstances it is possible to to include to include to include to include include amount of amount of amount of amount of capital gain in capital gain in capital gain in capital gain in a reserve, maintained for re-investment purposes. a reserve, maintained for re-investment purposes. a reserve, maintained for re-investment purposes. a reserve, maintained for re-investment purposes. amount of capital gain in a reserve, maintained for re-investment purposes. Sale shares of If corporation will sell shares in a company in which corporation has a substantial interest, capital gain will not be taxed as a result of applicability of participation exemption 29. If interest is If corporation will sell shares in a company in which corporation has a substantial interest, capital gain will not be taxed as a result of applicability of participation exemption 30. If interest is If corporation will sell shares in a company in which corporation has a substantial interest, capital gain will not be taxed as a result of applicability of participation exemption 31. If interest is If corporation will sell shares in a company in which corporation has a substantial interest, capital gain will not be taxed as a result of applicability of participation exemption 32. If interest is If corporation will sell shares in a company in which corporation has a substantial interest, capital gain will not be taxed as a result of applicability of participation exemption 33. If interest is 29 Article 13 Corporate Income tax Act Idem 31 Idem 32 Idem 33 Idem 13

14 The RELEVANT TAX PROVISIONS AND SUBSEQUENT CHANGES FOR CORPORATIONS Nerlands Table less than 5%, less than 5%, less than 5%, less than 5%, less than 5%, capital capital capital capital capital gain gain may be gain may be gain may be gain may be may be taxed taxed at a taxed at a taxed at a taxed at a at a general general rate of 34,5%. general rate of 34,5%. general rate of 34,5%. general rate of 31,5%. rate of 29,6%. Capital loss Fixed assets A loss as a result of sale of fixed assets can be set off against positive results of company. If company will not have positive results, company will have a loss in that year. A loss as a result of sale of fixed assets can be set off against positive results of company. If company will not have positive results, company will have a loss in that year. A loss as a result of sale of fixed assets can be set off against positive results of company. If company will not have positive results, company will have a loss in that year. A loss as a result of sale of fixed assets can be set off against positive results of company. If company will not have positive results, company will have a loss in that year. A loss as a result of sale of fixed assets can be set off against positive results of company. If company will not have positive results, company will have a loss in that year. Shares Wages Average cost to Undertaking As a result of participation exemption, losses of a company realised by transfer of shares held in participations are not deductible unless participation is liquidated. An employee with a substantial interest in an Undertaking, is deemed to have a fictive salary of at As a result of participation exemption, losses of a company realised by transfer of shares held in participations are not deductible unless participation is liquidated. An employee with a substantial interest in an Undertaking, is deemed to have a fictive salary of at As a result of participation exemption, losses of a company realised by transfer of shares held in participations are not deductible unless participation is liquidated. An employee with a substantial interest in an Undertaking, is deemed to have a fictive salary of at As a result of participation exemption, losses of a company realised by transfer of shares held in participations are not deductible unless participation is liquidated. An employee with a substantial interest in an Undertaking, is deemed to have a fictive salary of at As a result of participation exemption, losses of a company realised by transfer of shares held in participations are not deductible unless participation is liquidated. An employee with a substantial interest in an Undertaking, is deemed to have a fictive salary of at 14

15 The RELEVANT TAX PROVISIONS AND SUBSEQUENT CHANGES FOR CORPORATIONS Nerlands Table least EUR least EUR least EUR least EUR least EUR a a a a a year 34. year 35. year 36. year 37. year 38. The costs are The costs are The costs are The costs are The costs are deductible. deductible. deductible. deductible. deductible. Average cost to employee The wages earned by employee are taxable in Box 1 at a maximum rate of 52%. The wages earned by employee are taxable in Box 1 at a maximum rate of 52%. The wages earned by employee are taxable in Box 1 at a maximum rate of 52%. The wages earned by employee are taxable in Box 1 at a maximum rate of 52%. The wages earned by employee are taxable in Box 1 at a maximum rate of 52%. Overall tax on distributed earnings or Dividends Timing Tax credit structure At moment of distribution of earnings are put at disposal of business owner. The company will withhold Dividend tax at a rate of 25% which is credited against personal Income tax. No credit will At moment of distribution of earnings are put at disposal of business owner. The company will withhold Dividend tax at a rate of 25% which is credited against personal Income tax. No credit will At moment of distribution of earnings are put at disposal of business owner. The company will withhold Dividend tax at a rate of 25% which is credited against personal Income tax. No credit will At moment of distribution of earnings are put at disposal of business owner. The company will withhold Dividend tax at a rate of 25% which is credited against personal Income tax. No credit will At moment of distribution of earnings are put at disposal of business owner. The company will withhold Dividend tax at a rate of 25% which is credited against personal Income tax. No credit will be 34 Wage Tax Act Idem 36 Idem 37 Idem 38 Idem 15

16 The RELEVANT TAX PROVISIONS AND SUBSEQUENT CHANGES FOR CORPORATIONS Nerlands Table be given for be given for be given for be given for given for Corporate Corporate Corporate Corporate Corporate Income tax Income tax Income tax Income tax Income tax paid paid by paid by paid by paid by by corporation. corporation. corporation. corporation. corporation. Excluding N.A. N.A. N.A. N.A. N.A. non profit tax Including non profit tax N.A. N.A. N.A. N.A. N.A. Deduction of expenses General rule Nondeductibility of expenses In general, Undertaking can deduct all expenses of Undertaking. The Dutch tax authorities will accept se costs, unless se costs are not businesslike. If expenses are made both for businesslike purposes and for private purposes, se expenses are partially not deductible. or In general, Undertaking can deduct all expenses of Undertaking. The Dutch tax authorities will accept se costs, unless se costs are not businesslike. If expenses are made both for businesslike purposes and for private purposes, se expenses are partially not deductible. or In general, Undertaking can deduct all expenses of Undertaking. The Dutch tax authorities will accept se costs, unless se costs are not businesslike. If expenses are made both for businesslike purposes and for private purposes, se expenses are partially not deductible. or In general, Undertaking can deduct all expenses of Undertaking. The Dutch tax authorities will accept se costs, unless se costs are not businesslike. If expenses are made both for businesslike purposes and for private purposes, se expenses are partially not deductible. or In general, Undertaking can deduct all expenses of Undertaking. The Dutch tax authorities will accept se costs, unless se costs are not businesslike. If expenses are made both for businesslike purposes and for purposes, se expenses partially or not deductible. private are 16

17 The RELEVANT TAX PROVISIONS AND SUBSEQUENT CHANGES FOR CORPORATIONS Nerlands Table Thin N.A. N.A. As of 2004: As of 2004: As of 2004: capitalization Interest paid Interest paid Interest paid by a by a by a corporation is corporation is corporation is deductible deductible deductible unless unless unless debt-equity debt-equity debt-equity (3:1) ratio is (3:1) ratio is (3:1) ratio is met 39. met 40. met 41. Overall No different No different No different No different No different tax corporate tax treatment tax treatment tax treatment tax treatment treatment for tax Retained earnings on Excluding non profit tax Including non profit tax Debt financing Interest deductibility Limits on interest deductibility Interest deductibility on business owner loan to Undertaking for distributed for distributed for distributed for distributed distributed earnings in earnings in earnings in earnings in earnings comparison of retained earnings. comparison of retained earnings. comparison of retained earnings. comparison of retained earnings. comparison retained earnings. N.A. N.A. N.A. N.A. N.A. N.A. N.A. N.A. N.A. N.A. Interest is generally deductible. However, under certain circumstances interest can not be deducted. Article 10 Vpb, article 10a Vpb, article 10b and article 15 paragraphs 4 and 5 Vpb. The interest is deductible at level of Undertaking but will be taxed at Interest is generally deductible. However, under certain circumstances interest can not be deducted. Article 10 Vpb, article 10a Vpb, article 10b and article 15 AD Vpb. The interest is deductible at level of Undertaking but will be taxed at Interest is generally deductible. However, under certain circumstances interest can not be deducted. Article 10 Vpb, article 10a Vpb, article 10b and article 15 AD Vpb. The interest is deductible at level of Undertaking but will be taxed at Interest is generally deductible. However, under certain circumstances interest can not be deducted. Article 10 Vpb, article 10a Vpb, article 10b and article 15 AD Vpb. The interest is deductible at level of Undertaking but will be taxed at in of Interest is generally deductible. However, under certain circumstances interest can not be deducted. Article 10 Vpb, article 10a Vpb, article 10b and article 15 AD Vpb. The interest is deductible at level of Undertaking but will be taxed at 39 Article 10D Corporate Income Tax Idem 41 Idem 17

18 The RELEVANT TAX PROVISIONS AND SUBSEQUENT CHANGES FOR CORPORATIONS Nerlands Table level of level of level of level of level of business owner (maximum 52%). business owner (maximum 52%). business owner (maximum 52%). business owner (maximum 52%). business owner (maximum 52%). The RELEVANT TAX PROVISIONS AND SUBSEQUENT CHANGES FOR PARTNERSHIPS Nerlands Table Tax applicable to partnerships 1. Tax rate Standard Maximum 52% Maximum 52% Maximum 52% Maximum 52% Maximum 52% Reduced Minimum Tax 32,35% 33,15% 33,55% 34,4% 34,15% Special Rates N.A. N.A. N.A. N.A. N.A. Non profit Municipalities Municipalities Municipalities Municipalities Municipalities tax (local tax are allowed to are allowed to are allowed to are allowed to are allowed to on levy taxes in levy taxes in levy taxes in levy taxes in levy taxes in corporations, accordance with accordance with accordance with accordance with accordance energy tax ) with Municipalities Municipalities Municipalities Municipalities Municipalities 2. Tax accounting rules Act. Without postponement, an annual return for individual income tax should be filed Act. Without postponement, an annual return for individual income tax should be filed Act. Without postponement, an annual return for individual income tax should be filed Act. Without postponement, an annual return for individual income tax should be filed Act. Without postponement, an annual return for individual income tax should be filed 18

19 The RELEVANT TAX PROVISIONS AND SUBSEQUENT CHANGES FOR PARTNERSHIPS Nerlands Table before 1 April of before 1 April of before 1 April of before 1 April of before 1 April subsequent subsequent subsequent subsequent of year. year. year. As of year. As of subsequent tax year 2004, tax year 2004, year. As of annual returns annual returns tax year 2004, for corporate for corporate annual returns income tax income tax for corporate should be filed electronically. should be filed electronically. income tax should be filed electronically. 3. Depreciation Basis Cost price Cost price Cost price Cost price Cost price Methods Linear Degressive Progressive Linear Degressive Progressive Linear Degressive Progressive Linear Degressive Progressive Linear Degressive Progressive Rates Accounting In accounts In accounts In accounts In accounts In accounts Intangibles Non depreciable assets 4. Provisions Risks and futures expenses Possible, intangible assets are depreciated linearly most of times. In general, all business assets are depreciable. An exception is depreciation of land and portfolio investment. The Nerlands Supreme Court has decided in 1998 (Baksteencase, HR 26 August 1998, BNB 1998/409) that it is possible to allocate funds to a provision for risks and future expenses. Possible, intangible assets are depreciated linearly most of times. In general, all business assets are depreciable. An exception is depreciation of land and portfolio investment. The Nerlands Supreme Court has decided in 1998 (Baksteencase, HR 26 August 1998, BNB 1998/409) that it is possible to allocate funds to a provision for risks and future expenses. Possible, intangible assets are depreciated linearly most of times. In general, all business assets are depreciable. An exception is depreciation of land and portfolio investment. The Nerlands Supreme Court has decided in 1998 (Baksteencase, HR 26 August 1998, BNB 1998/409) that it is possible to allocate funds to a provision for risks and future expenses. Possible, intangible assets are depreciated linearly most of times. In general, all business assets are depreciable. An exception is depreciation of land and portfolio investment. The Nerlands Supreme Court has decided in 1998 (Baksteencase, HR 26 August 1998, BNB 1998/409) that it is possible to allocate funds to a provision for risks and future expenses. Possible, intangible assets are depreciated linearly most of times. In general, all business assets are depreciable. An exception is depreciation of land portfolio investment. and The Nerlands Supreme Court has decided in 1998 (Baksteencase, HR 26 August 1998, BNB 1998/409) that it is possible to allocate funds to a provision 19

20 The RELEVANT TAX PROVISIONS AND SUBSEQUENT CHANGES FOR PARTNERSHIPS Nerlands Table for risks and future expenses. Bad debts It is not possible It is not possible It is not possible It is not possible It is not to allocate funds to a provision in to allocate funds to a provision in to allocate funds to a provision in to allocate funds to a provision in possible allocate to funds order to cover bad debts/debtors. However, for tax order to cover bad debts/debtors. However, for tax order to cover bad debts/debtors. However, for tax order to cover bad debts/debtors. However, for tax to a provision in order to cover bad debts/debtors. purposes it is purposes it is purposes it is purposes it is However, for possible to revaluate possible to re- possible to re- possible to re- tax purposes it valuate valuate valuate is possible to amount of amount of amount of amount of re-valuate debtors in debtors in debtors in debtors in amount of tax sheet. balance tax sheet. balance tax sheet. balance tax sheet. balance debtors in tax balance sheet. Pensions Repairs 5. Losses Carry forward Losses from entrepreneurship can be carried forward unlimited in time 42. repairs 3.53 IB). (article Losses from entrepreneurship can be carried forward unlimited in time 43. Losses from entrepreneurship can be carried forward unlimited in time 44. The business can make contributions for a provision for selfemployed. It is possible to allocate funds to a provision for repairs (article 3.53 IB). The business can make contributions for a provision for selfemployed. It is possible to allocate funds to a provision for The business can make contributions for a provision for selfemployed. It is possible to allocate funds to a provision for repairs (article 3.53 IB). The business can make contributions for a provision for selfemployed. It is possible to allocate funds to a provision for repairs 3.53 IB). (article Losses from entrepreneurship can be carried forward unlimited in time 45. The business can make contributions for a provision for selfemployed. It is possible to allocate funds to a provision for repairs (article 3.53 IB). Losses from entrepreneurshi p can be carried forward unlimited in time 46. Carry back 3 years 47 3 years 48 3 years 49 3 years 50 3 years Article Income Tax Act Idem 44 Idem 45 Idem 46 Idem 47 Idem 48 Idem 49 Idem 20

21 The RELEVANT TAX PROVISIONS AND SUBSEQUENT CHANGES FOR PARTNERSHIPS Nerlands Table Transfer of Not possible as Not possible as Not possible as Not possible as Not possible as losses losses are losses are losses are losses are losses are strictly strictly strictly strictly strictly connected to connected to connected to connected to connected to business owner. business owner. business owner. business owner. business owner. 5. Inventories Valuation rules FIFO, LIFO and Iron FIFO, LIFO and Iron FIFO, LIFO and Iron FIFO, LIFO and Iron FIFO, LIFO and Iron Allocation methods Inventories FIFO, LIFO and Iron Inventories Inventories FIFO, LIFO and Iron Inventories Inventories FIFO, LIFO and Iron Inventories Inventories FIFO, LIFO and Iron Inventories Inventories FIFO, LIFO and Iron Inventories Personal Income tax Interest Income N.A. from business owner s point of view. Dividends N.A. from business owner s point of view. Employment income Capital gains tax Sale of fixed assets N.A. from business owner s point of view. N.A. from business owner s point of view. N.A. from business owner s point of view. N.A. from business owner s point of view. N.A. from business owner s point of view. N.A. from business owner s point of view. N.A. from business owner s point of view. N.A. from business owner s point of view. N.A. from business owner s point of view. N.A. from business owner s point of view. N.A. from business owner s point of view. N.A. from business owner s point of view. N.A. from business owner s point of view. The capital gain The capital gain The capital gain The capital gain The capital gain will be taxed will be taxed will be taxed will be taxed will be taxed with normal with normal with normal with normal with normal income tax. income tax. income tax. income tax. income tax. Timing rules In general In general In general In general In general capital gain will capital gain will capital gain will capital gain will capital gain will be taxed at be taxed at be taxed at be taxed at be taxed at moment it moment it moment it moment it moment it comes up. This is moment of comes up. This is moment of comes up. This is moment of comes up. This is moment of comes up. This is moment realization of realization of realization of realization of of realization of gain. gain. gain. gain. gain. Accounting There are no There are no There are no There are no There are no 50 Idem 51 Idem 21

22 The RELEVANT TAX PROVISIONS AND SUBSEQUENT CHANGES FOR PARTNERSHIPS Nerlands Table rules specific specific specific specific specific accounting rules accounting rules accounting rules accounting rules accounting for capital gains. for capital gains. for capital gains. for capital gains. rules for capital gains. Inflation N.A. N.A. N.A. N.A. N.A. Rates The maximum The maximum The maximum The maximum The maximum rate of income rate of income rate of income rate of income rate of income tax is 52%. The tax is 52%. The tax is 52%. The tax is 52%. The tax is 52%.The minimum rate is minimum rate is minimum rate is minimum rate is minimum rate 32,35% ,15% ,55% ,4% 55. is 34,15% 56, Exemptions A capital gain realised by a transfer of assets does not have to be taxed immediately. Under certain circumstances it is possible to include amount of capital gain in a reserve, maintained for re-investment purposes. Sale shares Capital loss Fixed assets of The capital gain will be taxed in Box 2 at a rate of 25%. A loss as a result of sale of fixed assets can be set off against positive results of company. If company will not A capital gain realised by a transfer of assets does not have to be taxed immediately. Under certain circumstances it is possible to include amount of capital gain in a reserve, maintained for re-investment purposes. The capital gain will be taxed in Box 2 at a rate of 25%. A loss as a result of sale of fixed assets can be set off against positive results of company. If company will not A capital gain realised by a transfer of assets does not have to be taxed immediately. Under certain circumstances it is possible to include amount of capital gain in a reserve, maintained for re-investment purposes. The capital gain will be taxed in Box 2 at a rate of 25%. A loss as a result of sale of fixed assets can be set off against positive results of company. If company will not A capital gain realised by a transfer of assets does not have to be taxed immediately. Under certain circumstances it is possible to include amount of capital gain in a reserve, maintained for re-investment purposes. The capital gain will be taxed in Box 2 at a rate of 25%. A loss as a result of sale of fixed assets can be set off against positive results of company. If company will not A capital gain realised by a transfer of assets does not have to be taxed immediately. Under certain circumstances it is possible to include amount of capital gain in a reserve, maintained for re-investment purposes. The capital gain will be taxed in Box 2 at a rate of 25%. A loss as a result of sale of fixed assets can be set off against positive results of company. If 52 Article 2.10 Income Tax Act Idem 54 Idem 55 Idem 56 Idem 22

23 The RELEVANT TAX PROVISIONS AND SUBSEQUENT CHANGES FOR PARTNERSHIPS Nerlands Table have positive have positive have positive have positive company will results, results, results, results, not have company will company will company will company will positive results, have a loss in have a loss in have a loss in have a loss in company that year. that year. that year. that year. will have a loss in that year. Shares As a result of As a result of As a result of As a result of As a result of article IB, article IB, article IB, article IB, article IB, loss can be loss can be loss can be loss can be loss can be set off against set off against set off against set off against set off against results of results of results of results of results of previous three previous three previous three previous three previous three years. The loss can be set off years. The loss can be set off years. The loss can be set off years. The loss can be set off years. The loss can be set off against profits against profits against profits against profits against profits unlimited in unlimited in unlimited in unlimited in unlimited in future. future. future. future. future. Wages Average cost to Undertaking Average cost to employee The costs of wages paid are deductible. Income generated is taxable at a maximum rate of 52% The costs of wages paid are deductible. Income generated is taxable at a maximum rate of 52% The costs of wages paid are deductible. Income generated is taxable at a maximum rate of 52% The costs of wages paid are deductible. Income generated is taxable at a maximum rate of 52% Dividends Timing N.A. N.A. N.A. N.A. N.A. Tax credit N.A. N.A. N.A. N.A. N.A. structure Deduction of expenses General rule In general, In general, In general, In general, Nondeductibility of expenses Undertaking can deduct all expenses of Undertaking. The Dutch tax authorities will accept amounts unless certain costs are not businesslike. If expenses are made both for businesslike Undertaking can deduct all expenses of Undertaking. The Dutch tax authorities will accept amounts unless certain costs are not businesslike. If expenses are made both for businesslike Undertaking can deduct all expenses of Undertaking. The Dutch tax authorities will accept amounts unless certain costs are not businesslike. If expenses are made both for businesslike Undertaking can deduct all expenses of Undertaking. The Dutch tax authorities will accept amounts unless certain costs are not businesslike. If expenses are made both for businesslike The costs of wages paid are deductible. Income generated is taxable at a maximum rate of 52% In general, Undertaking can deduct all expenses of Undertaking. The Dutch tax authorities will accept amounts unless certain costs are not businesslike. If expenses are made both for businesslike 23

24 The RELEVANT TAX PROVISIONS AND SUBSEQUENT CHANGES FOR PARTNERSHIPS Nerlands Table purposes and for purposes and for purposes and for purposes and for purposes and private private private private for private purposes, se purposes, se purposes, se purposes, se purposes, se expenses are expenses are expenses are expenses are expenses are partially or not deductible. partially or not deductible. partially or not deductible. partially or not deductible. partially or not deductible. Thin capitalization N.A. N.A. N.A. N.A. N.A. Retained No special No special No special No special No special earnings treatment. treatment. treatment. treatment. treatment. Debt financing Interest Interest paid by Interest paid by Interest paid by Interest paid by Interest paid by deductibility partnership partnership partnership partnership partnership is deductible. is deductible. is deductible. is deductible. is deductible. Limits on interest deductibility Interest deductibility on business owner loan to Undertaking N.A., but interest should be at arm s length. Deductible at level of Undertaking unless seen as capital. N.A., but interest should be at arm s length. Deductible at level of Undertaking unless seen as capital. N.A., but interest should be at arm s length. Deductible at level of Undertaking unless seen as capital. N.A., but interest should be at arm s length. Deductible at level of Undertaking unless seen as capital. N.A., but interest should be at arm s length. Deductible at level of Undertaking unless seen as capital Is re a different tax treatment between distributions of earnings and capital gains realised by sale of business or shares in undertaking? The tax treatment of distributions of earnings can be described as follows. Distributed earnings (dividend) from a substantial shareholding (at least 5%) in a company (belastbaar inkomen uit aanmerkelijk belang) are taxed 57 at a flat rate of 25% 58. Apart from that, dividends from a substantial shareholding in a company are also subject to dividend withholding tax (dividendbelasting) 59 on distribution to shareholder at a rate of 15% Article 4.12 Income Tax Act Article 2.12 Income Tax Act Article 3 paragraph 1 Dividend Tax Act