Dutch tax plan 2012

Wednesday 30 November 2011

On 17 November 2011 the House of Representatives of the Dutch Parliament adopted the 2012 Tax Plan which is intended to become effective as of 1 January 2012. We will briefly discuss several important measures.

Interest deduction limitation for acquisition holdings
The 2012 Tax Plan sets forth an interest deduction limitation measure for acquisition holdings. It is aimed at structures designed to offset interest expenses on acquisition loans against taxable profits of the target company.
The limitation only applies to interest in respect of loans which are entered into in connection with the acquisition or increase of an interest in one or more entities which have subsequently been consolidated into a consolidated group for corporate income tax (CIT) purposes (fiscal unity) with the debtor of the acquisition loan. The measure also applies if the target is liquidated after entering into the fiscal unity with the debtor of the acquisition loan. Moreover, this measure also applies if the target or targets entered into a legal merger with the debtor of the acquisition loan. In short, interest expenses paid on those acquisition loans may only be deducted without taking the profits of the target or targets into account.

The following could be considered as the profit of the acquiring entity:

  • Profits of an entity that forms part of a fiscal unity, of the acquisition has been fully financed with equity or if the total acquisition loan in relation thereto has been paid off; and
  • Profits of all acquired entities that entered into a fiscal unity with the acquiring entity before 15 November 2011.

There are two safe harbours:

  • The de-minimis rule: the first EUR 1 million of interest on acquisition loans will not be affected; and
  • The relevant interest will only be non-deductible to the extent the is excess acquisition interest.

Substantial interest levy regime for foreign corporate taxpayers
Under the substantial interest levy, Non-Dutch resident corporate taxpayers that hold a substantial interest in a Dutch resident entity may be subject to Dutch CIT (at the statute rates of up to 25%) on income derived from that entity. This substantial interest levy will only apply if (a) such interest cannot be attributed to the assets of an active business enterprise of the shareholder and – as of 1 January 2012 – (b) one of the main reasons for the non-Dutch resident corporate taxpayer to hold a substantial interest in the Dutch entity is the avoidance of the Dutch personal income tax or dividend withholding tax (DWHT) of another person, e.g. a direct of indirect shareholder of the non-Dutch resident corporate taxpayer (purpose test).
In relation to the purpose test, it should be determined whether the non-Dutch resident corporate taxpayer has real significance and what its motives are to hold the substantial interest. The test will not be considered met if there would not be a higher tax claim without the interposition of that non-Dutch resident corporate taxpayer. The levy will be limited to 15% instead of 25% if the substantial interest in the Dutch resident entity is only held to avoid the imposition of Dutch DWTH.

Anti-abuse measure for distributions by a Cooperative
Under the current domestic tax law profit distributions by a Cooperative to its members should not be subject to Dutch DWHT. The anti-abuse measure under the 2012 Tax Plan is aimed at Cooperatives that are artificially interposed between a foreign resident parent and a Dutch or foreign resident subsidiary to avoid Dutch or foreign taxes on dividends, without the Cooperative having a real significance. A Cooperative will only have to withhold 15% Dutch DWHT in situations in which the structure is used such that a member avoids taxes. This will be the situation if (1) the avoidance of Dutch DWHT or foreign taxes is the main purpose for using a Cooperative as an intermediate holding company (purpose test) and (2) the directly or indirectly held membership right in the Cooperative held by another person can not be attributed to its active business enterprise. The anti-abuse measures may also apply to profit distribution to members that hold their membership interests as business assets. If there was an existing Dutch DWHT tax claim on profits of a Dutch resident company when the Cooperative acquired shares in that company, the anti abuse measure may also be applicable regardless of the tests. This measure will not apply to the extent an existing Dutch DWHT claim has already been collected under the Dutch anti-dividendstripping rules. 
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