On 21 September 2021, the Dutch government announced the budget and its tax plans for 2022. We have outlined the main plans in this update for you. Please note that the legislative proposals mentioned have yet to be approved by Parliament. They are therefore still subject to amendment.
- Corporate income tax rates
- Changes to the CIT loss carry-forward mechanism
- Exemption for subsidies received under the Reimbursement Fixed Costs scheme (COVID-19)
- Limitation of set-off of dividend tax and gambling tax
- Bill preventing mismatches when applying the arm’s length principle
- Reverse hybrid entities
- Structural reduction of the landlord levy
- No real estate transfer tax due on repurchase of property from private individuals
- Temporary increase fixed exemption work-related expenses scheme now enshrined in law
- Tax-free allowance for working from home costs
- Postponing taxation on stock option income
As the government announced in its 2021 Tax Plan, the first income bracket for the starter CIT rate was to be increased to EUR 395,000 in 2022. The 2022 Tax Plan announced yesterday does not provide for any changes. Consequently, the rates will be as follows (with the 2021 rates stated for comparison purposes):
Changes to the CIT loss carry-forward mechanism
From 1 January 2022, losses in excess of EUR 1 million suffered in financial years commencing on or after said date will only be eligible for set-off for up to 50% of the taxable profit. Any remaining losses may be carried forward to any future year. These changes also affect the set-off of losses suffered in previous financial years. Basically, losses suffered in financial years from 1 January 2013 onwards may be carried forward indefinitely. The carry-back period continues to be one year, however. This proposal was first introduced in the 2021 Tax Plan.
A bill will be enacted to the effect that the subsidies received by SMEs under the Reimbursement Fixed Costs [Tegemoetkoming Vaste Lasten (TVL)] scheme will not be considered taxable income for CIT or income tax purposes. In anticipation of the bill being adopted, a policy decision has been taken to regulate this proposal.
In response to the Sofina judgment of the European Court of Justice of 22 November 2018, the government has announced that the set-off of dividend tax and gambling tax (hereinafter: 'withholding taxes') against CIT will be limited as from 1 January 2022, the reason being to remove any conflict with EU legislation.
At present, resident taxpayers for corporate income tax (hereinafter: ‘CIT’) purposes can fully offset withholding taxes. This means, among other things, that there is a full right to a refund of withholding tax withheld if a resident taxpayer does not owe any CIT in a particular year, for example because of a loss suffered. With effect from 1 January 2022, the set-off of withholding tax will be limited up to the amount of CIT due before the set-off in a particular year. Withholding tax that cannot be set off in a year may be carried forward to future years.
In addition to the amendment to the relevant rules, a number of accompanying measures will be taken with effect from 1 January 2022 to regulate the concurrence with the reorganisation facilities and the facility regarding the fiscal unity for CIT purposes.
Earlier this year, the government held an online public consultation regarding the new Dutch draft legislative proposal that unilaterally addresses certain transfer pricing mismatches to avoid international double non-taxation. Mismatches may result in double non-taxation, for instance in international contexts if a foreign party applies the arm’s length principle differently or not at all, and in a national context if one party to the transaction is not subject to CIT, such as a municipality. Considering this an undesirable situation, the Dutch government now proposes the following key measures.
1. Transactions taking place in financial years starting on or after 1 January 2022:
- Downward adjustments of the Dutch taxable profit as a result of the arm’s length principle will only be granted to the extent that there is a corresponding upward adjustment in the other party's tax base.
- The inclusion on a Dutch balance sheet for CIT purposes of assets or liabilities at fair market value (step-up for assets or step-down for liabilities) will only be accepted by the Dutch Tax Authorities to the extent that a corresponding adjustment is made at the level of the affiliated transferring party.
2. Transactions taking place during financial years starting between 1 July 2019 and 1 January 2022:
- The amount of depreciation to be taken into account on assets acquired from an affiliated party for a price that was not at arm’s length will be limited if the transaction were to fall within the scope of this draft legislation, had this legislation been in force at the time that the transaction took place.
In March 2021, the Dutch government held an online consultation on a proposal relating to reverse hybrid entities. This forms part of the Dutch implementation of ATAD2. Following this consultation, the government published a draft bill on 21 September 2021. This bill is intended to enter into effect on 1 January 2022.
Reverse hybrid entities are partnerships that are non-tax transparent in the jurisdiction of incorporation or establishment but are considered tax transparent in the jurisdiction of one or more of the participants. The key points of the bill are:
- Dutch reverse hybrid entities in which at least 50% of the voting rights, capital or profit entitlement is directly or indirectly held by an affiliated participant or a group of investors will be subject to Dutch CIT. Where the income of the reverse hybrid entity is taxable in the country of the participant, a deduction rule applies.
- In line with the CIT treatment of reverse hybrid entities, a Dutch reverse hybrid entity will be considered as the beneficiary and as such become liable to Dutch dividend withholding tax, but only if the dividends relate to participants who consider the reverse hybrid entity to be non-tax transparent.
- Along the same line, a Dutch reverse hybrid entity will become a withholding agent for the interest or royalties paid to that reverse hybrid entity (and, from 1 January 2024, dividends), but only if the payments relate to participants who consider the reverse hybrid entity to be non-tax transparent.
The landlord levy will be reduced to compensate housing associations and major private landlords for freezing the rents for social housing. At present, the levy amounts to 0.526% of the tax base. It is proposed to reduce the levy to 0.485% on 1 January 2022. In addition, the caretaker cabinet proposes to make it possible to change the tax reduction rate on a monthly basis to prevent the available budgets from being exceeded or at least minimise such excess. We should add that an alternative bill has been mooted by the left-wing parties, ‘PvdA’ and ‘GroenLinks’, calling for the total abolition of the landlord levy.
With effect from 1 January 2022, housing associations or project developers that repurchase from private individuals homes earlier sold to these individuals subject to specific conditions will no longer be subject to real estate transfer tax. The current real estate transfer tax rate in such cases is 8%. More details on this particular measure will be provided in our newsletter for housing associations.
The fixed exemption in the work-related expenses scheme amounts to 3% up to an amount of EUR 400,000 of the payroll for tax purposes. The percentage used to be 1.7%, but was raised to 3% in 2020 and 2021 due to the COVID-19 pandemic. This gives employers more scope to give their employees additional allowances and benefits in kind. With the proposal for the 2022 Tax Plan, the temporary increase for 2021 will now be enshrined in law. In 2022, the increase will no longer apply, meaning that the discretionary margin up to EUR 400,000 of the wage bill will revert to 1.7%, and to 1.18% above that amount.
As the country is still being governed by a caretaker cabinet, we expect the debate on the above bills and proposals to continue, so much so that amendments may be put forward and approved before the bills are adopted and enacted.
Obviously, we will keep you posted of such developments.