1. Introduction
On 19 September 2023, the Dutch government published its Tax Plan 2024 (Belastingplan 2024) (Tax Plan). Although the Tax Plan was drafted by the outgoing government (demissionair kabinet), which is only allowed to act as caretaker until a new government has been formed following the upcoming elections on 22 November 2023, it includes several impactful legislative proposals. Most provisions of the Tax Plan are intended to enter into force on 1 January 2024; if later, we will specifically mention this.
The Tax Plan includes various measures that will have an impact on businesses and financial institutions. These include, among other things, a change of the Dutch entity classification rules for Dutch limited partnerships (commanditaire vennootschap), Dutch funds for joint account (fonds voor gemene rekening) and foreign partnerships. Furthermore, an amendment relevant to fiscal investment institutions (fiscale beleggingsinstelling) investing in real estate and a further limitation of interest deductions for real estate investors under the earnings stripping rules have been proposed; both are expected to enter into force as of 2025.
In this e-Alert, we discuss the legislative proposals that are most relevant to the business community as from 2024. We will therefore also briefly discuss legislative changes that have been adopted previously but that will become effective as of January 2024, as well as a number of international tax developments.
The Tax Plan 2024 is published here.
2. Corporate income tax
2.1 Dutch Entity Classification Rules
Under current law, Dutch limited partnerships (commanditaire vennootschap) (CVs) and non-Dutch comparable partnerships can either be structured as opaque (subject to Dutch Corporate Income Tax (CIT)) or transparent (flow through tax treatment) for Dutch tax purposes. Originally, the Dutch Ministry of Finance intended to change the Dutch entity classification rules as of 1 January 2022 to reduce mismatches with entity classification rules of other jurisdictions. These changes were aimed at reducing complexity and hybrid mismatches. However, this original timeline was abandoned following criticism from market parties that would be adversely impacted by the draft proposal. The current proposal is envisaged to enter into effect on 1 January 2025 and is more or less in line with the original proposal. The main difference is that this revised proposal does not include changes to the classification rules for Dutch funds for joint account (fonds voor gemene rekening) (FGRs), which were the key topic of criticism from the market. These changes are laid down in a separate legislative proposal that is also envisaged to become effective as of 1 January 2025 (see below).
The proposed changes to the classification rules relate to both the classification of Dutch and foreign entities as either tax transparent or opaque (non-transparent). An important change will be that the so-called open CV (open commanditaire vennootschap) will cease to exist and hence all Dutch limited partnerships will become transparent for Dutch CIT purposes. In addition, the ‘Dutch partnership with a capital divided into shares’ (personenvennootschap waarvan het kapitaal geheel of gedeeltelijk in aandelen is verdeeld), currently tax opaque for Dutch tax purposes, will be tax transparent as well. For non-resident entities incorporated or entered into under foreign law that are not comparable to a Dutch legal form and that hold an interest in a Dutch entity or in which a Dutch entity holds an interest, or that realise Dutch taxable income, it is proposed that the Netherlands will follow the classification made by the foreign jurisdiction. In contrast, Dutch tax resident entities, incorporated or entered into under foreign law having a legal form that is not comparable to a Dutch legal form, would be treated as taxable entities in the Netherlands (and thus as opaque for Dutch CIT purposes), notwithstanding the qualification in their jurisdiction of incorporation. Such entities include, for instance, the German Kommanditgesellschaft auf Aktien (KGaA).
Dutch limited partnerships that are currently subject to tax, will be deemed to have transferred their assets and liabilities against fair market value immediately prior to the entry into force of the proposed changes (i.e. 31 December 2024), potentially leading to taxable profits. At the same time, participants in the Dutch limitation partnership are granted a corresponding step-up to fair market value for their proportionate entitlement to the partnership’s assets and liabilities. Specific transitional measures are proposed for 2024 to facilitate a tax neutral roll-over of latent capital gains embedded in interests in Dutch limited partnerships whose Dutch tax treatment changes due to the new rules. In addition, it is proposed that participants in a Dutch tax opaque limited partnership can contribute their limited partnership interest in another (Dutch) entity against the issuance of shares (share merger). If conditions are met, it is proposed that such share merger can be effectuated tax neutrally. A real estate transfer tax (overdrachtsbelasting) (RETT) exemption is proposed in cases where the limited partnership owns Dutch real estate at the time of the share merger. Finally, if Dutch CIT would be payable by a Dutch tax opaque limited partnership as a result of the new rules, payment deferral may be requested for a maximum period of ten years.
We note that based on the wording of the proposed legislative provisions itself, the transitional measures only apply to Dutch tax opaque limited partnerships (open CVs) and their participants. Based on the explanatory notes, however, the above transitional rules also apply to foreign entities comparable to Dutch open CVs that are currently subject to Dutch CIT. This may need to be included in a minor technical amendment to the legislative proposal and we expect that such foreign entities will also be eligible to benefit from the proposed transitional rules.
2.2 Dutch Fiscal Investment Institution (FBI) Regime
Certain entities investing in (passive) portfolio investments are eligible for the status of fiscal investment institution (fiscale beleggingsinstelling) (FBI) for CIT purposes (the FBI-status). FBIs investing in real estate are commonly referred to as the Dutch equivalent of a real estate investment trust (REIT). An FBI is subject to Dutch CIT at a rate of 0% if it meets certain stringent conditions including an obligation to distribute qualifying profits within eight months after the end of the financial year. The main purpose of this tax facility is to allow for a collective investment by individuals in, for instance, shares, bonds and real estate assets without triggering higher taxes than if they had made such investments directly and individually. We note that in principle an FBI is required to withhold Dutch dividend withholding tax in respect of the annual (mandatory) distribution of its profits.
The Tax Plan introduces new rules pursuant to which FBIs are no longer allowed to directly invest in Dutch real estate (foreign real estate investments are still allowed, yet are of less relevance as the jurisdiction where the real estate is located is typically entitled to levy tax in relation to such real estate). As such, an entity no longer qualifies as an FBI if it holds Dutch real estate assets and thus becomes subject to Dutch CIT at the regular rate of 25.8% (19% over the first EUR 200,000), instead of the 0% rate for entities with the FBI-status. The government proposes certain transitional measures for FBIs holding Dutch real estate for 2024, including Dutch RETT exemptions.
Initially, the changes were to take effect as of 1 January 2024, but this has been revised to 1 January 2025; except for the transitional measures, which will take effect as of 1 January 2024. Consequently, existing FBIs have more time to restructure their tax status or portfolio. For instance, pension funds that currently invest in real estate via an FBI may consider restructuring their investments to hold them directly or through a tax transparent partnership (CV or FGR), since pension funds are exempt from Dutch CIT. FBIs losing their status should pay attention to the date of losing the FBI-status and the impact on the ‘opening balance sheet’ as such is determined on the fair market value upon losing the status.
2.3 Funds for Joint Account and Exempt Investment Institutions
Under current law, Dutch funds for joint account (or ‘FGRs) and non-Dutch comparable investment vehicles can either be structured as (i) an ‘open FGR’, which is opaque for Dutch tax purposes and subject to Dutch CIT, or (ii) a ‘closed FGR’, which is transparent for Dutch tax purposes and not subject to Dutch CIT. A FGR is closed if its participating rights are not freely tradable, which under current law is the case if the participating interest are only transferrable with the consent of all other participants (the so-called ‘consent requirement’) and/or if the participating interests can only be transferred to the FGR (i.e. the manager) itself or relatives of the participant in the direct line. If the FGR or a comparable non-Dutch investment vehicle does not meet these criteria, it qualifies as open it is thus tax opaque.
The Tax Plan includes a proposal to amend the definition of the open FGR in the Dutch Corporate Income Tax Act 1969 (Wet op de vennootschapsbelasting 1969) such that only an investment institution (belegginginstelling) and UCITS (instelling voor collectieve belegging in effecten) within the meaning of the Financial Supervision Act (Wet op het financieel toezicht) are eligible for the ‘open’ FGR status. In addition, the ‘consent requirement’ will be abolished. Based on the view of the Dutch legislator, (i) the ‘consent requirement’ is not generally applied under international tax rules and principles and therefore regularly results in hybrid mismatches, and (ii) the manner in which FGRs are used in practice deviates from their initial purpose. Differences between investing through FGRs and limited liability companies should therefore be abolished with the proposed amendments. This proposal will mainly affect FGRs used for estate planning purposes, as these funds often do not qualify as an investment institution or UCITS and thus cannot qualify as an open FGR under the proposal.
In addition, the exempt investment institution (vrijgestelde beleggingsinstelling) (VBI) regime will change in line with the changes to the FGR regime and, as such, only be available to investment institutions and UCITS as referred to in the Financial Supervision Act. The VBI regime is only available to public limited liability companies (e.g. Dutch N.V.’s) or FGRs. Under current law, a VBI is not subject to Dutch CIT and dividend distributions by a VBI are not subject to Dutch dividend withholding tax, with which the Dutch legislator aimed at facilitating collective investments in financial instruments of retail and institutional investors. Whereas in practice, most VBIs are family-owned companies. This measure will therefore mainly impact family-owned companies that currently use the VBI regime.
With the proposed adjustments, the government aims to align the regulations with their original objective and to prevent the unintended use of the FGR and VBI regime. These proposals are envisaged to enter into force as of 1 January 2025.
As a result of the proposed amendments, ‘open FGRs that are currently subject to Dutch CIT and that will no longer be subject to Dutch CIT under the new rules, will be deemed to have transferred their assets and liabilities against fair market value immediately prior to the entry into force of the proposed changes (i.e. 31 December 2024). At the same time, investors in an open FGR are granted a corresponding step-up to fair market value for their proportionate entitlement to the FGR’s assets and liabilities if that FGR’s Dutch tax qualification is impacted by the proposed rules. For the year 2024, certain transitional measures are proposed to facilitate a tax neutral roll-over of latent capital gains embedded in the participating interests in FGRs affected by the proposed amendments. An open FGR that is affected by the proposed changes will be able to either (i) apply for a roll-over of the tax book values of its assets, or (ii) settle the CIT liability that arises from the ‘deemed’ transfer within 10 annual instalments. It is only possible to roll-over tax book values to the extent that the investors of the FGR are subject to Dutch CIT. Furthermore, investors in the FGR will be subject to Dutch personal income tax or CIT, as the case may be, as a result of a deemed transfer of their participating interests in the FGR against fair market value. These investors will be able to execute a share merger in which the Dutch levy is preserved. Subject to certain circumstances, an exemption of RETT will also be available if the FGR owns Dutch real estate at the time of the share merger.
3. Real Estate
3.1 Restriction RETT Concurrence Exemption
The acquisition of Dutch real estate assets is subject to Dutch RETT. A 2% rate applies to residential property for own use. Otherwise, 10.4% applies. In certain cases, in theory next to RETT also VAT (21%) may be applicable. This would be the case in relation to Dutch real estate that is considered ‘new’ for Dutch RETT purposes and qualifying building plots. To prevent this double taxation, a RETT concurrence exemption (samenloopvrijstelling) may apply, resulting in a RETT exemption. Under the current rules, the concurrence exemption may also be applied in relation to the acquisition of an equity interest in a Dutch real estate rich company. As a result, neither RETT nor VAT is due, as share transfers are not subject to VAT. These structures were mainly tax efficient in cases where the VAT would otherwise not have been creditable such as in residential property transactions or transactions involving financial institutions. The application of the concurrence exemption in cases where there is effectively no concurrence of VAT and RETT is considered as undesired by the Dutch government. It intends to address this by changing the concurrence exemption.
The proposed legislative amendment will exclude the concurrence exemption (and thus RETT will be due on the acquisition of the equity interest in shares) in situations where an equity interest in a Dutch real estate rich entity is acquired, except if the underlying new real estate will be used for at least 90% VAT taxable supplies (such as hotel and logistic real estate) on the moment of acquisition and during two years after acquisition. In such case, to reduce overkill for share transactions whereby the underlying real estate is used for less than 90% VAT taxable supplies (e.g. leased residential and health care real estate), a reduced RETT rate of 4% (instead of 10.4%) will apply. The reduced rate takes into account that the entity will also have suffered VAT costs on the development of the property.
The proposal is envisaged to enter into force on 1 January 2025 and will only apply to projects that started after 19 September 2023. Projects for which parties signed an intention agreement before this date will not be impacted by the legislative changes.
3.2 No Changes to Earnings Stripping Rule
The earnings stripping rule is a generic interest deduction limitation rule included in the Dutch Corporate Income Tax Act 1969 (Wet op de vennootschapsbelasting 1969). Based on the earnings stripping rule, net interest expenses (i.e. interest expenses minus interest income) may only be deducted up to 20% of a taxpayer’s (adjusted) taxable profit or, if higher, EUR 1 million. Non-deductible net interest expenses can be carried forward indefinitely to subsequent years.
As the rule applies on a by taxpayer basis, in practice one may divide activities over various stand-alone taxable, yet related, companies, using the threshold of EUR 1 million multiple times. This is not uncommon practice in part of the Dutch real estate sector where annual interest expenses exceed the 20% threshold. In this context, the government intends to abolish the threshold of EUR 1 million for companies that rent out real estate to third parties. This measure was initially expected to be part of the Tax Plan, but the government decided not to include it this year. It is currently expected that the measure will be included in next year’s tax plan, and consequently it is not expected to enter into force before 1 January 2025.
4. Employment taxes and Management Incentives
4.1 Lucrative Interests
The lucrative interest rules inter alia affect employee equity instruments (and similar ones) that may generate ‘excessive’ returns due to leverage effects (hefboom). Such leverage is deemed present if (i) various classes of shares are issued and the shares held by the employee rank junior to other classes of shares while constituting less than 10% of the share capital (aggregate of nominal capital, share premium and certain hybrid debt); or (ii) preference shares with a preferred annual dividend of at least 15% are held by employees. Income and gains from these instruments are taxed at 26.9% under the regime for substantial interests (Box 2) if held through a qualifying holding structure and at a maximum rate of 49.5% under the regime for employment income (Box 1) otherwise.
The Dutch Supreme Court (Hoge Raad) ruled on 14 April 2023 that only (hybrid) debt that functions as equity should count towards the minimum leverage ratio of 10%. However, leverage can also be created through debt that does not function as equity (for example, arm’s length loans from shareholders) and the Dutch tax authorities have often accepted (through advance tax rulings) that the more junior ranking equity instruments qualify as lucrative interest in this scenario.
According to the Dutch State Secretary of Finance, the criterion that the Supreme Court now provides creates uncertainty about existing positions and agreements relation to case involving regular loans that function as debt for tax purposes. In addition, if the consequences of this Supreme Court ruling are not repaired, it could lead to structures that avoid the lucrative interest regime in the future. The lucrative interest regime will therefore be amended with retroactive effect to 26 June 2023. In other words, equity instruments that were treated as lucrative interest because of non-equity like loans from shareholders would keep that treatment, even after 14 April 2023. It also implies that new structures may also use at arm’s length shareholders’ loans to structure lucrative interests (also see this post).
4.2 30% Facility
Under the 30% facility, a tax-free allowance of 30% of the employee’s Dutch-sourced remuneration can be granted to qualifying incoming expatriates employed by a Dutch employer instead of reimbursing this employee for the real additional costs and expenses caused by the expat assignment. The regime is currently available for a maximum period of five years with no financial cap, but as part of last year's tax plan (Tax Plan 2023) (see our e‑Alert of last year here), the facility will be capped at the maximum wage as included in the Standards for Remuneration Act (Wet normering topinkomens), which is EUR 223,000 (in 2023). The new cap will apply as of 1 January 2024, but for expatriates that already applied the facility in 2022 the cap enters into force as of 1 January 2026.
5. Personal Income Tax
5.1 ‘Box 2’ and ‘Box 3’
As included in the Tax Plan 2023, the tax rate for individuals with a substantial interest in a company (‘Box 2’) (in short: a share interest of at least 5%) will change as of 2024. A progressive tax rate will be introduced: the first EUR 67,000 of income from a substantial interest will be taxed at 24.5% and the excess will be taxed at 31%. The tax rate applicable to Box 3-income (i.e. the deemed return) will increase from the current 32% (2023) to 34% in 2024.
Furthermore, the Dutch government published a draft legislative proposal introducing a new system for the taxation of income from savings and investments (‘Box 3’). This proposal is a response to the Dutch Supreme Court ruling that the current Box 3-system, which is based on a deemed return on assets, may under specific circumstances contravene the (First Protocol to the) European Convention on Human Rights. Basically, the new system will tax actual returns, both realised and unrealised. In this respect, Dutch income tax will be levied annually on the regular gains from assets (such as interest, dividends, rent and lease), minus costs, and the realised and unrealised changes in value of assets in the relevant year (such as capital gains or losses on shares), minus costs. Realised value changes occur, for example, upon sale. Unrealised value changes occur when the asset has increased or decreased in value but has not yet been sold or disposed of. Immovable property and shares in family businesses and start and scale-ups are excluded from the main rule as only realised income from these assets will be taxable.
The new system is intended to make the taxation of income from savings and investments fairer, more efficient and more future proof. The new rules are intended to enter into effect as of 1 January 2027.
5.2 Business Succession Scheme
Earlier this year, the Dutch government announced eight measures to amend the business succession scheme in the gift and inheritance tax (BSS) and the deferral scheme for substantial interest in the personal income tax (DS ab). Five of these announced measures are included in the Tax Plan, the other three measures require more time to implement and are expected to be included in next year’s tax plan.
The following five amendments included in the Tax Plan are expected to enter into force on 1 January 2025 (although the proposal under (ii) is envisaged to enter into force at a date yet to be determined, but at the earliest 1 January 2025):
- (i) the BSS is amended by maximizing the going concern value to which the exemption of 100% applies and amending the rate for the excess value. The maximum going-concern value of EUR 1,205,871 (for 2023) will be increased to a maximum of EUR 1.5 million as of 2025. Any going concern value exceeding the € 1.5 million threshold will only be exempt for 70% of the exceeding value.
- (ii) the 5% efficiency margin for investment assets in the BSS and the DS ab is abolished.
- (iii) business assets that are used both privately and commercially only qualify for the BSS and DS ab to the extent that they are used in the business.
- (iv) the employment requirement in the DS ab will be abolished.
- (v) to apply the BSS and DS ab on a gift of a substantial interest, the recipient needs to be at least 21 years old.
In addition to these measures, the announcement in the Tax Plan 2023, to no longer allow real estate rented out to third parties to qualify for the BSS and the DS ab as of 1 January 2024, is also part of the proposals in this Tax Plan.
6. Dividend withholding tax
6.1 Conditional Withholding Tax
As of 2021, a Dutch conditional withholding tax applies to payments of interest and royalties. The conditional withholding tax is an anti-abuse measure and currently applies to interest and royalty payments made (or deemed to be made) by a Dutch entity (broadly defined) directly, or – if certain requirements are met – indirectly, to an affiliated entity or permanent establishment of such entity (i) in a low-taxing or non-cooperative jurisdiction; or (ii) in cases of abuse (hereinafter: qualifying beneficiaries). An entity is affiliated if it can directly or indirectly control the decisions made by the other entity on its activities. Commonly, this is the case for example If it has more than 50% of the voting rights but may also apply in other circumstances.
In November 2021, a bill was adopted that extends the scope of the conditional withholding tax to dividends and other profit distributions. The conditional withholding tax on dividend distributions will enter into force on 1 January 2024. The tax base of the conditional withholding tax on dividends is in line with the tax base for the existing Dutch dividend withholding tax. Similar to the conditional withholding tax on interest and royalties, only dividends and other (deemed) profit distributions made to affiliated entities in low-taxing jurisdictions or in certain defined cases of abuse are in scope of the conditional withholding tax on dividends.
The current dividend withholding tax will continue to exist alongside the conditional withholding on dividends. If a profit distribution is subject to both the existing dividend withholding tax and the new conditional withholding tax on dividends, the existing dividend withholding tax paid can be credited against the conditional withholding tax liability. Conditional withholding tax levied cannot be credited against any non-resident Dutch CIT payable by qualifying beneficiaries. Furthermore, currently another legislative proposal is pending that, if adopted, would result in non-deductibility of conditional withholding tax for non-resident Dutch CIT purposes.
The tax rate of the conditional withholding tax remains equal to the rate of the second bracket of the Dutch CIT for the relevant year, i.e. 25.8% (in 2024).
6.2 Combatting Dividend Stripping
Dividend arbitrage includes a strategy of buying shares of a company before it pays a dividend and selling them shortly after, to profit from the difference between the pre- and post-dividend prices and the tax treatment of dividends. In dividend stripping transactions, parties enter into a series of transactions aimed at lowering the dividend withholding tax burden, without an actual transfer of economic ownership of the underlying securities. Dividend stripping has long been under increased scrutiny by the Dutch authorities, has recently received significant media attention and is currently being investigated by authorities in several jurisdictions, including the Netherlands.
To further combat dividend stripping, the Dutch government proposes two new measures. The first measure is that a specific reference to the record date as the date on which it is determined which entity is entitled to dividends from, in short, listed shares is included in the Dutch dividend withholding tax act (Wet op de dividendbelasting 1965). In the past, this practice was already included in a relevant decree, but according to the State Secretary of Finance, including it in the law itself creates more legal certainty.
The second measure concerns a shift of the burden of proof in favour of the Dutch tax authorities. This shift includes two aspects. The first aspect expands the existing anti-abuse provision (also referred to by the State Secretary of Finance as the test which non-exhaustively defines which parties are in any event not to be considered beneficial owners of dividends) by specifying that “the series of transactions” entered into by the taxpayer should be tested at a group level. The aim is to prevent taxpayers from dividing these transactions between group members and concealing these in cross-borders transactions.
The second aspect includes a shift of the burden of proof in relation to the taxpayer being the beneficial owner of the dividends. In addition to the existing anti-abuse provision described above, the taxpayer must present a plausible argument that it is indeed the beneficial owner of the dividend if it applies for a credit, reduction or refund of Dutch dividend withholding tax. The meaning of beneficial owner should be interpreted within the meaning of the OECD Model Treaty, its commentary and the relevant case law of the European Court of Justice.
The second aspect in relation to the shifted burden of proof does not apply to all taxpayers. To avoid excessive administrative burden for small investors, the proposal includes a de minimis threshold. A taxpayer is only subject to the new shifted burden of proof in relation to beneficial ownership if the withheld dividend withholding tax for that taxpayer exceeds EUR 1,000 per financial or calendar year. For those below the threshold, the second aspect of the new division of the burden of proof does not apply.
7. European and International initiatives
7.1 Pillar One and Pillar Two
The OECD and many of its member states have identified that the increasing digitalisation of the global economy requires a fundamental reform of the allocation of profits between jurisdictions. This fundamental reform was not part of the OECD’s project on Base Erosion and Profits Shifting (BEPS), but instead is laid down in the OECD ‘blueprint’ for Pillars One and Two. In July 2023, an Outcome Statement is issued on the two Pillars, which is approved by 138 of the 143 jurisdictions at the meeting of the Inclusive Framework (including the United States of America). Belarus, Pakistan, Russia, Sri Lanka and Canada did not sign off on the statement.
Specifically in respect of Pillar One – the initiative that aims to reallocate taxing rights to market jurisdictions that is to be effected through a multilateral instrument – it is said that of the multilateral instrument has been negotiated, is largely finalized and is expected to be published and signed by the end of this year.
In relation to Pillar Two, the 15% minimum tax for multinationals with consolidated revenue of at least EUR 750 million, the Netherlands published its legislative proposal for Pillar Two on 31 May 2023 (following adoption of the EU Pillar 2 Directive by EU Member States in December 2022). This legislative proposal however still needs to be discussed and approved by the Dutch Parliament.
Furthermore, in a letter dated 4 September 2023, the Dutch State Secretary of Finance the Dutch government seemed to be prepared to apply the Subject to Tax Rule (STTR), which is part of the Pillar 2 framework, upon request from a treaty partner, as it considers the STTR a just treaty provision. The STTR is a treaty-based rule, which ensures that developing countries – in deviation from the allocation of taxing rights agreed upon in a tax treaty – may levy more (withholding) tax on certain payments if the other treaty country where the payment is received applies a statutory rate that is lower than 9%. However, it is uncertain as to whether such request will be made by a treaty partner because, in principle, the relevant payments are already subject to an adequate level of taxation in the Netherlands.
For more information, we refer you to ‘OECD Pillar Talk’ – our very own series of webinars, podcasts and publications on the two Pillars which can be found here.
7.2 Unshell Directive Proposal
The proposed ‘Unshell directive’ or ATAD 3 targets aggressive tax planning techniques linked to the use of shell companies. ATAD 3 was initially planned to be implemented into domestic law before 30 June 2023 and applied by EU member states as from 1 January 2024. However, the adoption has not yet taken place. We expect further developments on this matter in November when the ECOFIN meeting will be held. For further information on ATAD 3, we refer you to the blogs on our website: ‘ATAD 3, a new proposal to target the misuse of shell entities in the EU’ and ‘Will Unshell be washed away? An uncertain future for ATAD 3 – the EU’s tax proposal on shell entities’.
7.3 EU BEFIT
On 12 September 2023, the European Commission published its proposal for a common corporate tax framework under the title “Business in Europe: Framework for Income Taxation” or “BEFIT”. The Commission’s aim is to simplify the tax environment within the EU, creating a level playing field, with enhanced legal certainty and reduced compliance costs, thereby encouraging businesses to operate cross‑border and stimulate investments and growth. The new rules would apply to EU tax resident companies and EU‑located permanent establishments and will be mandatory for domestic or multinational groups operating in the EU with an annual combined revenue of at least EUR750 million in at least two of the last four fiscal years (irrespective of whether this combined revenue is realised within the EU or not).
For more information, we refer you to our online publication “EU FIT for BEFIT? The Commission’s proposal to streamline corporate tax across Europe”, which can be found here.
7.4 FASTER
Earlier this year, the European Commission published a legislative proposal, referred to as FASTER, in which a common system of withholding tax relief at source and quick refund procedures for dividends and interest is presented. The proposal aims to reduce the administrative burden and costs for cross-border investors in the securities market. The Commission estimates that the proposal could save investors up to EUR 5.17 billion per year and would also prevent tax abuse (such as the recent cum/cum and cum/ex cases). The proposal does, however, also include additional reporting obligations for certain intermediaries, such as large financial institutions.
The proposal is still at an early stage and, if adopted by the EU, would require implementation into domestic law of the relevant EU jurisdictions. Under the timeframe envisaged by the European Commission, the directive and corresponding domestic legislation would enter into force on 1 January 2027. For more information, we refer you to our online publication about FASTER.
7.5 Public Country-by-Country Reporting
As discussed in our previous e-Alert regarding the Tax Plan 2023, as of fiscal year 2016, the ultimate Dutch resident parent of a qualifying multinational group has to file a Country-by-Country (CbC) report with the Dutch tax administration. The confidentiality of the CbC reports changes with the entering into force of the public CbC reporting directive that was published on 2 December 2021. The legislative proposal to implement the CbC Directive was adopted in July 2023. Companies in scope of the CbC reporting obligation must publicly disclose the taxes paid and other tax-related information such as a breakdown of revenues, profits, and employees per EU jurisdiction and per jurisdiction included on the so-called EU black list and EU grey list. The first reporting obligation is for financial years starting on or after 22 June 2024.
8. Parliament can make changes to the Tax Plan
It is possible that the Tax Plan as it is currently drafted will be amended in the course of Parliamentary discussions. New elements may be added to the Tax Plan. Due to the caretaker status of the government, and it may also be the case that certain proposals in the Tax Plan will be postponed in order to be considered by a future government, as they may require political decisions. It is currently expected that the Second Chamber of Parliament (Tweede Kamer) will vote on the amendments and the final contents of the Tax Plan on 26 October 2023. The First Chamber of Parliament (Eerste Kamer), which has no right of amendment and can only adopt or reject the legislative proposals, is expected to vote on the Tax Plan on 19 December 2023.
