FS Tax Newsletter | December 2022
Dear FS professional,
Now that we are heading into autumn, we would like to update you on the developments that took place during the spring and summer of 2022.
For other tax-related topics not included in this FS Tax Newsletter, please visit our website.
If you would like to know more about the matters addressed in this newsletter, please contact us.
Table of Contents
1. Good Practices Tax Control Framework: next steps
2. Bill on implementation of EU Directive on the exchange of information in the digital platform economy (DAC7)
3. Group company not a fixed establishment for VAT purposes, but CJEU has left the door open
4. 2022 Spring Memorandum – tax measures
5. New Dutch policy statement insurance premium tax
6. Transfer of leased building by developer classified as transfer of going concern for VAT purposes despite earlier decision
7. 2022 Transfer Pricing Decree
8. Change to policy statement on VAT fixed establishments
9. 2022 Decree on Profit Attribution to Permanent Establishments
10. New reporting requirements for payment service providers (CESOP)
11. VAT exemption on fiduciary management services to pension funds
12. SEO publishes advisory report on functioning of Dutch investment regimes
13. Dutch Supreme Court clarifies Section 10a CITA 1969 interest deduction limitation in acquisition structures
14. Letter sent to Lower House of Parliament summarizing internet consultation and setting out follow-up process to strengthen combating of dividend stripping
1. Good Practices Tax Control Framework: next steps
In its webinar on January 13, 2022, the Dutch Tax and Customs Administration (DTCA), in collaboration with the Dutch Association of Tax Advisors, provided further details on the background to the Good Practices Tax Control Framework (TCF), which were published in December 2021 (available in Dutch only through this link) and elaborated on how to apply these good practices in real-world situations.
The TCF includes case studies of the TCF and is designed to provide a rough understanding of ways in which an organization can address the different elements of the TCF. The webinar showed that each organization is unique and that the TCF calls for customization. That said, there are a few basic principles that characterize each TCF. These basic principles, which were covered extensively during the webinar, are concentrated in the following areas:
- tax strategy and organization;
- tax control and risk assessment;
- monitoring and reporting.
The DTCA will increasingly engage with organizations to ask them about the extent to which they have implemented the basic principles of tax control. This means that their TCF is required to meet these basic principles. It is important that a TCF should be geared to a taxpayer’s organization; customization is key.
For more information, please do not hesitate to reach out to the Tax Assurance team of KPMG Meijburg & Co or your own contact person at our organization.
For more information on this matter, please follow this link or contact Jan Moret and René Hendriksen.
2. Bill on implementation of EU Directive on the exchange of information in the digital platform economy (DAC7)
On March 23, 2022 the Deputy Minister of Finance presented the bill on the EU Directive on Information Exchange in the Digital Platform Economy (Implementation) Act to the Lower House of Parliament. This bill regulates, among other things, the introduction of a reporting obligation for digital platform operators to provide the Dutch tax authorities with information about certain users (‘sellers’) on their platform. This obligation stems from Council Directive (EU) 2021/514 (‘DAC7’) and applies for the first time to financial years as of January 1, 2023, with as first reporting deadline January 31, 2024.
DAC7 is a uniform reporting obligation for platform operators, stemming from the need for tax authorities to obtain more transparency about the income sellers generate via digital platforms. DAC7 is also intended to introduce a uniform EU-wide reporting obligation in order to reduce the administrative burden for platform operators.
The obligation to collect, verify and report information applies to both EU and non-EU platform operators. Reporting platform operators must provide information about the sellers on digital platforms. These are sellers that, during the reporting period, are registered on the platform and perform a relevant activity.
For more information on this matter, please follow this link or contact Lieke Mutsaers, Sinan Gelici and Tom Noë.
3. Group company not a fixed establishment for VAT purposes, but CJEU has left the door open
On April 7, 2022, the Court of Justice of the European Union rendered judgment in the Berlin Chemie case (C-333/20). At issue was whether a sub‑subsidiary in this specific case qualifies as a fixed establishment of its second-tier parent company. The CJEU concluded that this was not the case. Although this appears to be a reassuring outcome in practice, the CJEU has allowed for the possibility that there could indeed be a fixed establishment. In its Berlin Chemie judgment, the CJEU provided more guidance on the circumstances in which the human and technical resources of an independent legal entity could result in a separate fixed establishment.
Whether this provides the desired clarity in practice is debatable. After recent CJEU judgments in, among others, Dong Yang (C-547/18) and Titanium (C-931/19), this case shows that the fixed establishment concept continues to demand attention.
In the Netherlands, a sub-subsidiary is rarely regarded as a fixed establishment of a second-tier parent company. Under the Fixed Establishment Decree, the general rule is that a legally independent sub-subsidiary is regarded as an independent taxpayer. It is therefore reassuring news that the CJEU has reconfirmed that a sub-subsidiary does not automatically constitute a fixed establishment for VAT purposes.
Other EU Member States sometimes see this differently. Therefore, it cannot be ruled out that in other EU Member States a sub-subsidiary may qualify as a fixed establishment. Tax authorities may use the ruling of the CJEU in this case to argue that a sub-subsidiary does indeed qualify as a fixed establishment in certain cases. It was just recently that a Belgian court asked the CJEU for a preliminary ruling in the Cabot Plastics Belgium (C-232/22) case. That case revolved around whether a Belgian toll manufacturer can qualify as a fixed establishment of a Swiss principal.
In view of current developments in EU case law, we recommend regularly assessing whether your cross-border activities could lead to the existence of a fixed establishment and the associated tax obligations. Our advice is to ensure that the relevant facts and the results of such assessments are properly documented, just in case the Dutch or foreign tax authorities raise questions about this.
For more information on this matter, please follow this link or contact Rahiela Abdoelkariem and Frank Prinsen.
4. 2022 Spring Memorandum – tax measures
Dutch Minister of Finance Ms. Kaag submitted the 2022 Spring Memorandum to the Lower House of Dutch Parliament on Friday, May 20, 2022. This Memorandum sketches the outlines of the planned decision-making on the budget for 2023 and subsequent years. The final draft budget for 2023 will be presented on Budget Day (2023 Tax Plan). The parliamentary debate and the decision-making will take place in the fall. The relevant items for corporate taxpayers are summarized below.
- Reduction in step-up tax bracket as of 2023: The step-up corporate income tax bracket, i.e. the portion of the taxable amount that is subject to the low corporate income tax rate of 15%, will be reduced from EUR 395,000 to EUR 200,000 with effect from 2023. This substantial reduction is explained by referring to the fact that the implementation of the OECD Pillar Two Model Rules (or rather the implementation of the EU Directive that is based on these Model Rules) has been delayed by one year and will effectively come into force in 2024. The fiscal loss associated with that delay is estimated at EUR 1 billion. The Dutch Ministry of Finance had said earlier that the worldwide implementation of the Pillar Two Model Rules in the Netherlands would result in a gain of EUR 0.5 billion because it expected activities to be relocated from low-tax jurisdictions to the Netherlands. Now that the implementation date of the Pillar Two Model Rules is uncertain, however, expectations are that no activities will be relocated to the Netherlands for the foreseeable future.
- Increase in general real estate transfer tax rate to 10.1% as of 2023: The Dutch government plans to increase the general real estate transfer tax rate to 10.1%. This general rate is 8% at present; it was supposed to rise to 9% by January 1, 2023. The government now plans to raise it to 10.1%. The purchase of a residential property by a natural person who will use it as their principal residence will continue to be taxable at 2%, or at 0% if the first-time buyer’s exemption applies.
The 2022 Spring Memorandum provides insight into the policy themes that the Dutch government is grappling with at this time. It also paints a picture of the measures the government plans to take to finance its spending. Dutch-based businesses and high-net-worth individuals can expect substantial tax increases in particular. This might give rise to you having to rethink your tax position. Your Meijburg advisor would be happy to help you review your situation.
For more information on this matter, please follow this link or contact Michael van Gijlswijk and Fred van Horzen.
5. New Dutch policy statement insurance premium tax
The new Dutch policy statement on insurance premium tax (IPT) was published on May 12, 2022. This policy statement updates and supersedes the earlier IPT policy statement of 2017. The new IPT policy statement contains a number of changes, the most notable of which are two aspects that concern the transport exemption. A distinction between goods transports by a contracted transport company and the “own transport” of certain goods is explained. Secondly, the new policy statement specifies a maximum period of three months for temporary storage; the maximum period under the earlier policy statement was one month.
The new policy statement entered into force on May 13, 2022, but the changes governing the transport exemption will not take effect until May 13, 2023.
The policy statement does not address the other issues that were covered in a letter that the Dutch tax authorities sent to several insurance sector associations a while ago. These issues include the VAT and IPT treatment of intermediation and advice.
For more information on this matter, please follow this link or contact Otto van Gent and Nienke van den Blink.
6. Transfer of leased building by developer classified as transfer of going concern for VAT purposes despite earlier decision
The Arnhem-Leeuwarden Court of Appeals delivered two important rulings for the Dutch real estate practice on May 17, 2022. Contrary to an earlier decision of 2018, the Court ruled in two cases that the transfer of a property which was leased out for a short term by a developer qualified as a transfer of a going concern for VAT purposes. In both cases, the property had been leased on a VAT-exempt basis. As a result of these decisions, the tax due is limited to the non-recoverable VAT on the renovation costs, land costs, if any, and additional costs, rather than the non-recoverable VAT on the purchase price.
Both cases revolved around the question whether the transfer of the property which has been leased out for a short term qualified as a transfer of a going concern as referred to in Section 37d of the Dutch Turnover Tax Act 1968. What is important here is that, although the taxpayer has no right to reclaim input VAT on all building-related costs because the building is leased VAT-exempt to the tenants, no (non-recoverable) VAT is due on the higher selling price paid by the buyer.
Assuming that both proceedings involved the transfer of a newly constructed building, no VAT will be due on the full purchase price of the building since the transfer qualifies as a transfer of a going concern. That is why the non-recoverable VAT (due to the VAT-exempt lease) is limited to the VAT on the renovation costs, land costs, if any, and additional costs incurred by the property developer. In contrast, the development profit is not subject to non-recoverable VAT.
In both proceedings, the legal transfer took place shortly after the building was first put into VAT use (3.5 months and 2 weeks). Although the proceedings are highly similar to those that resulted in the decision of April 4, 2018, the Court of Appeals has reached a different conclusion. Despite the fact that the Deputy Minister of Finance still has the option to appeal this decision with the Supreme Court, this is a highly welcome decision for property developers.
For more information on this matter, please follow this link or contact Han Leijten and Willeke Tigchelaar.
7. 2022 Transfer Pricing Decree
On July 1, 2022 the new Transfer Pricing Decree of June 14, 2022 was published (hereinafter: the Decree). The Decree replaces the transfer pricing decree of April 22, 2018 and section V of the Questions and Answers (Financial Service Entities) Decree from 2014.
The most important changes compared to the previous decree from 2018 are the following:
- Several completely new sections on financial transactions have been added. The reason for their addition is the publication of the new Chapter X of the OECD guidelines, which places more focus on substance and the application of the Comparable Uncontrolled Price (CUP) method. A completely new section on intra-group financial services has also been added.
- A change has been made to the policy on intra-group services.
- The section on government policy has been expanded with a section on governmental aid measures, in particular in response to the COVID-19 pandemic.
Textual changes have been made in order to ensure the terminology used is more consistent with the terminology used in the OECD guidelines and in Dutch legislation and regulations.
The OECD Transfer Pricing Guidelines have been amended over the last few years (most recently on January 20, 2022), partly as a result of the OECD’s BEPS project. These OECD guidelines will also be regularly updated in the future and if necessary will result in a new transfer pricing decree. The most important changes to the Decree are summarized below.
For more information on this matter, please follow this link or contact Jaap Reyneveld, Dianne Berry and Eduard Sporken.
8. Change to policy statement on VAT fixed establishments
A change to the Dutch policy statement on VAT fixed establishments was published on July 5, 2022. Because of this change, cross-border transactions within a legal entity may be subject to VAT if this entity is a member of a VAT group in a country. The policy statement will take effect on January 1, 2024.
The change to the policy statement in principle affects every taxable person that has a combination of fixed establishments and VAT groups in the EU. That said, the judgment will have the greatest impact on taxable persons with a limited VAT recovery right, such as financial institutions and insurance companies, because they can also expect financial consequences.
It seems to follow from the explanatory note to the policy statement that the Deputy Minister of Finance is aware of the impact of this policy change. Given that the amended policy statement will not take effect until January 1, 2024, taxable persons will have the opportunity to prepare for the change, especially in terms of their systems.
For more information on this matter, please follow this link or contact Gert-Jan van Norden, Irene Reiniers and Jochum Zutt.
9. 2022 Decree on Profit Attribution to Permanent Establishments
On July 1, 2022 the new decree on profit attribution to permanent establishments was published. This decree replaces the old decree of January 15, 2011. The decree is intended to provide clarity on the manner in which the Dutch Tax and Customs Administration deals with profit attribution to permanent establishments. The most important changes are the incorporation of the results of the OECD’s BEPS project and the source exemption that was introduced into the Corporate Income Tax Act 1969 (‘CITA’) in 2012. A number of editorial changes have also been made and references to other decrees/policy statements and documents have been updated.
The decree explains how the Dutch Tax and Customs Administration deals with profit attribution to permanent establishments. The new decree only has a limited number of substantive changes compared to the old decree of January 15, 2011. Most of the changes involve editorial changes and updated references to other decrees/policy statements and documents.
The most important changes concern the following topics:
- Risk allocation, control over risk
- Source exemption
- Double non-taxation
For more information on this matter, please follow this link or contact Franklin Hundscheid, Jaap Reyneveld and Eduard Sporken.
10. New reporting requirements for payment service providers (CESOP)
As of January 1, 2024 new requirements for payment service providers will take effect. The relevant EU Directive and EU regulation have already been published. However, most EU Member States have yet to transpose the new EU Directive into their national legislation.
Under the new rules, payment service providers are obliged to keep sufficiently detailed records of certain cross-border payments. The definition of payment service providers is quite broad and not only covers companies traditionally recognized by the market as payment service providers but also includes banks, electronic money institutions and potentially other types of payment institutions. The definition of payment is likewise quite broad. We imagine that a significant number of transactions will fall under the scope of the new definition.
Payment service providers must report transaction data to the competent authority in their EU Member State. That competent authority has to transmit the information to the Central Electronic System of Payment Information (CESOP). The new Directive is often referred to by its acronym: the CESOP Directive. The intention is to use this information to detect potential situations of VAT fraud.
KPMG Meijburg’s tax advisors would be pleased to elaborate on this new change.
For more information on this matter, please contact Gert-Jan van Norden and Karim Hommen.
11. VAT exemption on fiduciary management services to pension funds
The Dutch court has ruled that fiduciary management services provided to pension funds may qualify as “management” within the meaning of the VAT exemption for the management of investment funds. In other words, if these services are provided to an investment fund, the VAT exemption will apply. Although this judgment is from a District Court, the fact that it is not being appealed means it can be relied on when taking a tax position. It is important to check whether a service meets the relevant criteria as laid down in this judgment, when determining whether the VAT exemption applies.
For more information on this matter, please contact Gert-Jan van Norden and Irene Reiniers.
12. SEO publishes advisory report on functioning of Dutch investment regimes
On July 7, 2022 the Deputy Minister of Finance presented the SEO report on the functioning of Dutch investment regimes to the Lower House of Parliament. The report deals with two Dutch investment regimes: the fiscal investment institution (FII) regime and the exempt investment institution (EII) regime. Against the background of the original objectives of the regimes, the SEO analyzed whether these objectives had achieved what they had set out to do (effectiveness) and whether this had been done in an efficient manner (efficiency). In the accompanying letter to the report, the Deputy Minister of Finance indicated that he will study the report and respond to it after the summer, when he will announce his policy intentions.
With regard to the FII regime, the SEO distinguished between FIIs that invest in securities and FIIs that invest in real estate. The SEO provided general directions for resolving the bottlenecks of both regimes.
- The SEO found that EIIs have failed to achieve the sole policy objective of the EII regime, i.e. making Dutch investment regimes more internationally competitive. Tax considerations are not necessarily decisive in order to be internationally competitive. Nonetheless, the EII regime has been successful in preventing a further outflow of investment from the Netherlands. The execution and administrative costs are low, partly due to the absence of an obligation to file a tax return. The downside to this is that unregulated EIIs are not subject to any type of permanent supervision. Tax leakage may occur as a result of the conversion of vehicles into EIIs with foreign shareholders.
- The SEO concluded that for Securities FIIs, the regime generally succeeds in meeting the original policy objectives and does so with low additional execution and administrative costs. For the Dutch market, the Securities FII is basically an internationally competitive regime. For the non-Dutch market, the SEO found that tax considerations were not necessarily decisive in order to be internationally competitive.
- For Real estate FIIs, the FII regime has achieved the objective of tax neutrality in a domestic context. The SEO recognized that, in some respects, foreign real estate investment regimes offer investors more benefits. Although the additional execution and administrative costs are generally low, certain aspects of the regime have relatively high administrative costs, which the SEO explained is the result of certain elements of the regime no longer being in line with (international) market developments. This mainly concerns the activities allowed under the FII regime since the only activity permitted is “investment” and is strictly interpreted. The SEO also acknowledged that tax leakage may occur as a result of foreign real estate funds applying for the FII regime (there are some cases pending before the Dutch Supreme Court whose outcome could have a major impact) and as a result of double tax treaties.
At present it is unclear how this report and the analysis performed by the SEO will impact the FII and EII regimes. The SEO explicitly steered away from recommending that the real estate FII regime be abolished (something the market had feared) as it considered this to be a disproportionate measure for resolving the apparent bottlenecks in the regimes. The Deputy Minister’s response and subsequent policy decisions in this regard will shed further light on the future of the investment regimes.
For more information on this matter, please contact Annemiek van Dijk, Jeroen Bruggeman and Jennifer Evers.
13. Dutch Supreme Court clarifies Section 10a CITA 1969 interest deduction limitation in acquisition structures
On Friday, July 15, 2022 the Dutch Supreme Court rendered two judgments on the deduction of interest on loans that served to finance external acquisitions by private equity funds. In particular, the Supreme Court answered several outstanding questions about Section 10a Corporate Income Tax Act 1969 (‘CITA 1969’), such as when is there an ‘intra-group (non-business motivated) diversion’. The judgments by the Supreme Court will ensure that the interest deduction limitation of Section 10a CITA 1969 can be applied less quickly than the Dutch Tax and Customs Administration has been advocating in practice. However, this certainly does not mean that it will now be easy to deduct interest on an acquisition loan. The reasons for this include the fact that the Supreme Court has developed the ‘non-business motivated loan doctrine’, Section 10a CITA 1969 has meanwhile been tightened, hybrid mismatch measures (ATAD2) apply and generic interest deduction limitations, such as the earnings stripping measure, have been included in CITA 1969. And last but not least, fraus legis (fraud of law) can also still throw a spanner in the works.
For more information on this matter, please follow this link or contact Michael van Gijlswijk and Luc van der Voort.
14. Letter sent to Lower House of Parliament summarizing internet consultation and setting out follow-up process to strengthen combating of dividend stripping
In practice, large amounts in dividend tax are avoided via various forms of dividend stripping, which the Dutch tax authorities cannot properly combat with the legal instruments currently available to it. The government wants to prevent this improper use without unnecessarily affecting normal stock exchange trading. In order to decide on a measure that will do the most justice to these wishes, interested parties were consulted. The internet consultation, entitled ‘Options for strengthening measures to prevent dividend stripping’ was launched on December 15, 2021 and closed on January 26, 2022. In our memorandum of December 15, 2021 we discussed this internet consultation and the six potential solutions outlined therein. On July 15, 2022 Deputy Minister of Finance Marnix van Rij sent a letter to the Lower House of Parliament in which he briefly summarized the internet consultation and outlined the government’s assessment of it and the follow-up process.
Out of the potential solutions that were presented in the consultation document, in general support was found for the introduction of additional measures to improve the information and evidence base i.e., introducing documentation obligations and codification of the record date.
The government noted that the European Commission is currently busy with an initiative to improve withholding tax procedures for non-resident investors. The government will also take one or more measures to strength how dividend stripping is combated. For the government, proportionality is central to any decision to opt for new measures, so that only abuse situations and not bona fide cases will be affected. The government currently sees opportunities in a combination of one or more additional measures and as such is examining measures that focus on improving the information and evidentiary backlog at the Dutch Tax and Customs Administration, including changing the current division of the burden of proof. An efficiency threshold for the amount of income is being considered.
All this will be examined in the coming period and consideration will be given to how the measures can be further elaborated on in a bill. Partly in light of the wish of the Lower House of Parliament to spread legislation throughout the year and given the complexity of combating dividend stripping, the measures to strengthen how dividend stripping is combated will not be able to be implemented until January 1, 2024.
For more information on this matter, please follow this link or contact Michael van Gijlswijk and Jeroen Bruggeman.
