Budget Day The tax consequences of the Dutch Tax Plan by theme. September 18, 2018 EY.nl/Prinsjesdag

Transcription

1 Budget Day 2018 The tax consequences of the Dutch Tax Plan by theme September 18, 2018 EY.nl/Prinsjesdag

2 Introduction It is almost as much a tradition as the Budget Day itself: the Budget Day mailing from EY. This year we are again informing you about the fiscal measures that the cabinet has proposed on the Budget Day. The package of tax measures mainly consists of the plans that the cabinet already announced in the coalition agreement "Confidence in the future". The decrease of labor costs, prevention of tax avoidance and evasion and maintenance of a good Dutch business climate are the priorities of the cabinet this year. In addition, the parliament is focused on a greener and more workable tax system. The economy is currently in full force and employment has increased in recent years. The cabinet believes that the Dutch population must be able to feel the positive effects hereof in their wallets. The costs of labor will therefore be reduced. According to the cabinet, the purchasing power of all groups, particularly of employees with a medium wage, will increase as a result of the combination of measures included in this Tax Plan 2019 package. The cabinet states that the purchasing power of 96% of the households will improve and that the (average) purchasing power of all households will be +1.6%. The cabinet partially funds the reduction of the labor costs through the increase of other taxes and the reduction of the rate against which certain deductions are taken into account. This applies to, for example, the mortgage interest tax relief and the allowance for entrepreneurs. The cabinet shifts the labor costs to costs of consumption by increasing the reduced VAT rate from 6% to 9%. As a result, groceries and consumption will become more expensive. The decrease of the corporate income tax rate results in the increase of the box 2 tax rate. The parliament indicates that, on balance, almost all entrepreneurs will benefit. This year, the Tax Plan package consists of seven legislative proposals. Tax Plan 2019 Legislative proposal Act withholding tax 2020 Legislative proposal fiscal greening measures 2019 Legislative proposal Other fiscal measures 2019 Legislative proposal Act implementation article 1 electronic commerce directive The Legislative proposal Act modernization small business scheme The Legislative proposal Act adjustment gambling tax for sports betting In the legislative proposal Act withholding tax 2020, a number of coherent measures are included. For example, the respective legislative proposal includes the introduction of the source tax on dividend payments to low-tax jurisdictions and in abuse situations, the abolishment of the dividend withholding tax and the reduction of the corporate income tax rate. Furthermore, measures that broaden the taxable base are proposed in the corporate income tax, such as a limitation of the depreciation of buildings and the limitation of the offsetting of losses. In addition to the tax plan 2019 package, the legislative proposal Act implementation of the first EU anti-tax avoidance directive was published on Budget Day. This legislative proposal contains measures to implement the European Anti-Tax Avoidance Directive (ATAD1). The cabinet indicates that this factually means that the rule for the limitation of interest deduction ("earnings stripping") and the rule for the so-called controlled foreign entities, abbreviated as CFC, will be introduced. The current exit tax is also amended. According to the cabinet, the mandatory implementation of a general anti-abuse provision is not required as the Netherlands already has a general anti-abuse provision through the fraus legis doctrine. The legislative proposals are not yet final. During the parliamentary proceedings, changes may still arise. We are of course closely monitoring the developments regarding the plans of the cabinet. We 1

3 will keep you informed of all relevant developments through our website EY.nl/Prinsjesdag and social media. Best regards, Jeroen Davidson Managing Partner EY Tax 2

4 Content 1. Employment market Protective tax assessment regarding pension upon emigration Changes to the 30%-scheme Amendments bicycle scheme Tax-free volunteer allowance Entrepreneurs and employers Increase tax rate box 2 of the Personal income tax (substantial shareholding) Limitation of loss setoff in box 2 of the Personal income tax Limitation of depreciation of building in own use Simplification of the VAT small business scheme Levying of taxes if director and major shareholder has a large current account debt Fiscal investment institution may no longer directly invest in Dutch real estate Reduction of the corporate income tax rate Limitation of loss setoff in the corporate income tax Abolishment dividend withholding tax and introduction source tax in abuse situations Abolishment deduction tier 1 capital banks and insurers Innovations and investments Determination reversal innovation box benefit amended Investment schemes continued until 2024; energy investment allowance reduced to 45% 7 4. Private individuals Rate box 1 Personal Income Tax (work and home) Increase of the tax credits Scaling back of tax allowance Amendment tax interest scheme for Personal income tax and inheritance tax Extension validity of exemption for foster parent compensation Housing market Scaling back of mortgage interest deduction Lowering the notional rental value of residences European anti-tax avoidance measures European Anti-Tax Avoidance Directive Implementation of earnings stripping measure Implementation of Controlled Foreign Company (CFC) rule Amendment exit taxation Abolishment interest deduction limitation rules and limitation rules for offsetting of losses holding and financing companies Environment Greening tax measures Amendments to the energy tax rates Amendments to the waste tax Tax reduction in the landlord tax Miscellaneous Increase of the reduced VAT rate from 6% to 9% Expansion of the sports exemption for VAT Simplification of VAT rules for electronic services Amendment gambling tax for sports betting Tackling recovery structures The term violator for tax purposes Processing of vehicle registration details Contact

5 1. Employment market 1.1 Protective tax assessment regarding pension upon emigration A proposal is made entailing that protective tax assessments regarding pension rights and annuity entitlements may not be imposed to the extent that these relate to: expenses for annuity entitlements made during the period before 1 January 1992 or during the period from 1 January 2001 up to and including 15 July 2009; entitlements and contributions pursuant to a pension scheme that were not considered part of the wages prior to 16 July Protective tax assessments may, however, be imposed on pension rights and annuity entitlements that are built up after 15 July Changes to the 30%-scheme The period during which a free allowance may be granted for extraterritorial expenses (in Dutch: extraterritoriale kosten or ET) incurred by expats ( incoming employees") is shortened by three years from eight to five years. This applies for both the fixed free allowance of 30% of the salary and the free allowance of the actual ET expenses. Existing cases are also affected by this. As no grandfathering rules are proposed, the 30%-scheme may already terminate in certain cases as per 1 January 2019 or during the course of Amendments bicycle scheme 2020 The cabinet wants to promote employers to put a company bicycle at the disposal of their employees (no transfer of ownership to the employee). The cabinet would in this respect like to eliminate the tax obstacle by a simplification of the valuation of the private benefit of the company bicycle. 1.4 Tax-free volunteer allowance Under certain conditions, a tax free allowance of maximum 150 per month and 1,500 per year may be paid to volunteers in As of 1 January 2019, these amounts are increased to 170 and 1,700. 4

6 2. Entrepreneurs and employers 2.1 Increase tax rate box 2 of the Personal income tax (substantial shareholding) A director and major shareholder (in Dutch dga ) with a substantial shareholding in his BV [company] must declare income from his BV in box 2 of the Personal income tax. In short, a substantial shareholding exists if the share interest of the dga exceeds 5%. The tax rate of box 2 will be increased as of Limitation of loss setoff in box 2 of the Personal income tax The setoff of losses in box 2 of the Personal income tax (losses from a substantial shareholding) is limited to six years. Losses in box 2 can be offset with income from a substantial shareholding in the previous year (carry back); income from a substantial shareholding within the next nine years (carry forward). 2.3 Limitation of depreciation of building in own use In the corporate income tax, the possibility to depreciate a building which is used by the taxpayer itself (or an affiliated company), will be limited per 1 January As such, buildings can only be depreciated up to the WOZ value. In that case buildings can only be amortized to the WOZ value of the building. There are no changes with respect to the personal income tax, whereby a building in own use can still be depreciated up to 50% of the WOZ value. 2.4 Simplification of the VAT small business scheme The small business scheme ( KOR, in Dutch kleineondernemersregeling ) will be amended per 1 January This is set out in a proposal to change the current VAT regulations for small entrepreneurs. If an entrepreneur based in the Netherlands expects to generate less than 20,000 a year in revenues (in the Netherlands), he may opt to be "exempted" from VAT from 1 January 2020 onwards. This new KOR is less complex than the current regulation and will also apply for e.g. foundations, associations and private limited liability companies ( BVs ). 2.5 Levying of taxes if director and major shareholder has a large current account debt It is noteworthy that it is stated in the Budget Memorandum that the cabinet is going to discourage tax deferral by taxing the debt ratio between the director and major shareholder ( dga, in Dutch directeur-grootaandeelhouder ) and his own private limited liability company ( BV ) in box 2 of the Personal income tax to the extent it exceeds 500,000. However, no reference is made to this in the published legislative proposals. It is said that these will be included in next years Tax Plan for

7 2.6 Fiscal investment institution may no longer directly invest in Dutch real estate For fiscal investment institutions (in Dutch: fiscale beleggingsinstellingen or FBIs), a corporate income tax rate of 0% applies. In order to be eligible for this, several requirements need to be met. These requirements will be tightened as FBIs may no longer directly invest in Dutch real estate as of 1 January Reduction of the corporate income tax rate The corporate income tax rate is gradually reduced to ultimately 16% in the first bracket (for profits up to and including 200,000) and 22.25% in the second bracket (for profits 200,000 and up) in The tax rate structure of the corporate income tax will be as follows: Taxable amount Tax rate Taxable amount Tax rate , % 200,000 and up 25.0% , % 200,000 and up 24.3% , % 200,000 and up 23.9% , % 200,000 and up 22.25% 2.8 Limitation of loss setoff in the corporate income tax In the corporate income tax, losses can currently be offset with the taxable profit of the prior year (carry back); the taxable profit of the next nine years (carry forward). As of 1 January 2019, the carry forward is limited to six years. Losses as per fiscal year 2019 can then be offset with the taxable profit up to and including For losses incurred before 2019, the current "carry forward" period of nine years applies. A loss incurred in 2018 may thus be offset with profits at the latest in the fiscal year In order to ensure the latter, a specific grandfathering is provided. 2.9 Abolishment dividend withholding tax and introduction source tax in abuse situations As of 2020 the dividend withholding tax is abolished. At the same time, a source tax is introduced on dividend distributions in abuse situations within a group. Starting in 2021, this scheme will be extended to interest and royalty payments. It is announced that the dividend withholding tax is abolished as of Dutch companies can as of that moment distribute dividends without withholding tax to their foreign shareholders Abolishment deduction tier 1 capital banks and insurers Effectively from 1 January 2019, the deductibility of the remuneration (coupon) of an supplementary tier 1-capital of banks and insurers is abolished. 6

8 3. Innovations and investments 3.1 Determination reversal innovation box benefit amended For purposes of the reversal of the benefit from the application of the innovation box, the exact amount that was previously not taxed will as of now be used instead of a fraction that is based on the corporate income tax rate. 3.2 Investment schemes continued until 2024; energy investment allowance reduced to 45% The sunset clause of the energy investment allowance (in Dutch: energie-investeringsaftrek or EIA), the environmental investment allowance (in Dutch: milieu-investeringsaftrek or MIA) and the arbitrary depreciation for environmental investments (in Dutch: willekeurige afschrijving milieuinvesteringen or VAMIL) has been extended until 1 January The regulations are as such continued for the upcoming five years. In addition, the EIA percentage will be reduced from 54.4% to 45% as of 1 January

9 4. Private individuals 4.1 Rate box 1 Personal Income Tax (work and home) The rate of box 1 of the Personal Income Tax (including the social security premiums) will be as follows in 2019: Taxable income To Income Tax Social Security Total from Premiums - 20, % 27.65% 36.65% 20,384 34, % 27.65% 38.10% 34,300 68, % % 68, % % 4.2 Increase of the tax credits The tax credits will be gradually increased. To provide families with lower income also the tax benefits, the government proposes to increase the maximum general tax credit to 2,477 in 2019, 2,642 in 2020 and 2,753 in The maximum for the employed person s tax credit will also be increased from 3,399 in 2019 to 3,941 in The maximum income-related combination tax credit ( IACK ) remains the same, but is already received by an individual with a lower income. 4.3 Scaling back of tax allowance As per 1 January 2019, tax allowance is deductible at a rate of 51.75% in the highest bracket of the Personal income tax. However, as per 1 January 2020 a large number of tax allowances will be scaled back. In 2020, the deductibility in the highest bracket will only be 46%, and this will annually be further decreased with 3%. As per 1 January 2023, the tax allowances will only be deductible at the rate of the first bracket (37.05%). 4.4 Amendment tax interest scheme for Personal income tax and inheritance tax The underlying principle for the tax interest scheme is that tax interest is charged if the tax assessment is not imposed due to the taxpayer not fulfilling its obligations. However, in the Personal income tax and inheritance tax, the situation may occur that the taxpayer is charged with tax interest despite the fact he fulfils its obligations timely and correctly. This is in contradiction with the principle of the tax interest scheme and therefore the following measures are undertaken: If a preliminary income tax assessment is requested or the personal income tax return is submitted before 1 May in the following year, no tax interest is charged. If a preliminary inheritance tax assessment is requested or the inheritance tax return is submitted within eight months after the death, no tax interest is charged. 8

10 4.5 Extension validity of exemption for foster parent compensation Those who take care of a foster child, may receive a foster parent compensation. From a tax perspective, the foster parent compensation is not considered as income and does not affect the amount of the healthcare allowance, housing allowance, benefit or personal budget (in Dutch: persoonsgebonden budget or PGB). Pursuant to the sunset provision included in the law, the exemption for foster compensations will lapse per 1 January However, the cabinet proposes to, in any event, have the exemption for foster compensations to continue during

11 5. Housing market 5.1 Scaling back of mortgage interest deduction The mortgage interest deduction in the highest bracket of the Personal income tax is reduced with 0.5% as of 1 January This is continued in 2019 resulting in a deductibility of 49% in 2019 in the highest bracket. As of 2020 the scaling back is accelerated resulting in annual reduction of 3%. 5.2 Lowering the notional rental value of residences Owners of a residence must report the notional rental value of residences (in Dutch eigenwoningforfait ). This value will be gradually decreased. For residences with a real estate value (in Dutch WOZ-value ) between 75,000 and 1,060,000 (amount in 2018), the notional rental value will gradually decrease from 0.70% to the expected percentage of 0.45% in

12 6. European anti-tax avoidance measures 6.1 European Anti-Tax Avoidance Directive The European Anti-Tax Avoidance Directive (ATAD1) includes a number of measures to counteract base erosion and profit shifting in the corporate income tax: earnings-stripping measure; controlled foreign company (CFC) rule; exit taxation, which provides for a mandatory exit charge in the case of a cross-border relocation of business activities; limitation of tax deductions in case of hybrid structures; general anti-abuse provision. The measures must be implemented by the Member States, including the Netherlands, into national legislation and shall enter into force on 1 January Implementation of earnings stripping measure The implementation of an earnings stripping measure forms part of the European anti-tax avoidance directive. The earnings stripping measure is a general interest deduction limitation rule in the corporate income tax which limits the deduction of the surplus of third party and intercompany interest expenses based on a fixed percentage of the gross operating income (EBITDA). 6.3 Implementation of Controlled Foreign Company (CFC) rule The implementation of a CFC rule forms part of the European Anti-Tax Avoidance Directive. This rule intends to prevent companies from shifting profits to a subsidiary located in a jurisdiction with a low tax rate. Under the CFC rule, certain categories of a CFCs income are directly included in the Dutch taxable basis. 6.4 Amendment exit taxation The deferred payment arrangement in the Dutch exit taxation rules for entities that are liable to corporate income tax is brought in line with the European anti-tax avoidance directive with respect to the following two items. Instead of the current deferral of payment, only a spread out payment plan of five years is offered in case of transfer to an EU/EEA country. This payment plan is terminated upon realization of the profits by the taxpayer. Based on the current Dutch regulations, the tax authorities may in principle safeguard its right to levy taxes in all cases in which a deferral of payment is granted. This will be limited. The levy of tax may now only be safeguarded if there is a demonstrable and actual risk of non-collection. For the personal income tax, the current Dutch deferred payment arrangement remains unchanged. 11

13 6.5 Abolishment interest deduction limitation rules and limitation rules for offsetting of losses holding and financing companies As a result of the introduction of the earnings stripping measure as general interest deduction limitation rule, the specific interest deduction limitation rules are again reviewed. It is proposed to abolish the interest deduction limitation rules relating to participation debt, the interest deduction limitation rule relating to acquisition debt and the limitation of the offsetting of losses for holding and financing companies (in Dutch: houdsterverliezen ). 12

14 7. Environment 7.1 Greening tax measures The cabinet has proposed various greening tax measures. EY vision In general, the greening tax measures are in line with the agreed coalition agreement and thus present little news. Furthermore, these measures do not demonstrate a great deal of ambition, in light of the State Secretary's letter on greening taxes earlier this year. The environmental taxes are only deployed to a very limited extent with regard to achieving the government's ambitious climate objectives and the plans which have existed for some time to shift taxation from labor to consumption also seems to lack consistency. 7.2 Amendments to the energy tax rates Effectively from 1 January 2019, the regular rates in the first brackets of the energy tax for natural gas will be increased with 3 cents per m 3 and for greenhouses with cents per m 3. At the same time, the tax rate in the first bracket for electricity is reduced to 0.72 per kwh. This proposal is in line with the idea of the cabinet stated earlier this year and which was also included in the letter on greening taxes. The principle of "the polluter pays" will be given a more decisive role and polluting behavior will as a result be more expensive. 7.3 Amendments to the waste tax The coalition agreement referred to broadening the basis for the waste tax by abolishing the exemption for burning sewage sludge and biomass. For the time being this will not be implemented. The rate will, however, be tripled, which is more than announced. The rate will be increased from to per 1,000 kilograms. 7.4 Tax reduction in the landlord tax The cabinet introduces a tax reduction in the landlord tax for more sustainable rental homes. This measure is in line with the government's broader policy and climate objectives. Making homes more sustainable is an important element in the strategy to achieve the objective of the Paris Climate Agreement. 13

15 8. Miscellaneous 8.1 Increase of the reduced VAT rate from 6% to 9% The Tax Plan states that the reduced VAT rate will be increased to 9% per 1 January The reduced rate is amongst others applied to food, non-alcoholic beverages and the entrance fee to museum, theatre performance and music concerts. 8.2 Expansion of the sports exemption for VAT The Dutch VAT exemption for sport and sport-related activities will be expanded per 1 January As a result of European developments, the Netherlands was forced to adjust its domestic exemption. Consequently, more activities will be exempt from VAT. 8.3 Simplification of VAT rules for electronic services Whereas all entrepreneurs currently need to charge foreign VAT to their private customers in the EU when they perform electronic services, a threshold will be introduced for this per 1 January This simplifies matters for smaller entrepreneurs: if their revenues from such services are less than 10,000 per year, they may charge the VAT of the country in which they are based. The invoicing rules for such services will also be simplified. 8.4 Amendment gambling tax for sports betting The legislative proposal for the Remote Gambling Tax Act (in Dutch: wet Kansspelen op afstand or KOA) is currently subject to approval by the Upper House of Parliament. This would allow the game providers to access the online market in the Netherlands, and the same tax liability and tax basis will apply for all remote gambling. The KOA Act is expected to enter into force per 1 June Tackling recovery structures Recently, a large focus has been paid to international tax structures to avoid and possibly evade taxes (e.g. the Panama Papers). The current possibilities for the Dutch Tax Authorities to collect taxes from these (international) tax structures are inadequate, resulting in the collection of tax debts to be seriously imperiled, according to the cabinet. As a result four new collection measures are being introduced, which are primarily intended to jointly contribute to tackling the recovery structures. 8.6 The term violator for tax purposes The term violator for tax purposes is expanded per 1 January 2014 with offender, instigator and the accomplice. As a result, an administrative penalty may be imposed on parties that deliberately help others with the non-compliance of their obligations. This expansion of the term violator was supposed to be eliminated per 1 January Considering also the preventive effect, it is proposed to extend the expiration date by five years until 1 January

16 8.7 Processing of vehicle registration details In light of a correct assessment of the motor vehicle taxes, it is necessary that the Dutch Tax Authorities have the right authorities to collect and use the necessary information. The processing of vehicle registration details is hereby of great importance. The Supreme Court previously ruled that the Dutch Tax Authorities was not permitted to use the vehicle registration details for the auditing the kilometre lodge in the context of the private use of a company car as for a long time an adequate legal basis was missing to monitor individuals for a longer period. 15

17 9. Contact General and procedural tax law Arjo van Eijsden E: T: Labor market and employers Jan-Bertram Rietveld E: T: Innovation and investments Entrepreneurs Income and Corporate Tax Ben Kiekebeld E: T: Rudolf de Vries E: T: Entrepreneurs European measures Daniel Smit E: T: Enterprises VAT, transfer tax, customs, environmental taxes Walter de Wit E: T: Private individuals Wealthy individuals Rob Boltjes E: T: Roxana Bos E: T:

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