Dear FS Professional,
We hope you and your loved ones enjoyed the summer holiday season in good health.
This Budget Day 2020 special issue of our Financial Services Tax Newsletter includes the relevant measures of the 2021 Tax Plan for the FS sector. This issue also addresses other recent tax measures and developments: the Opinions issued by the Dutch Advocate General in two cases on the Dutch VAT treatment of the management of individual assets via investment profiles, a draft bill on the functioning of Dutch pension plans that has been presented to the Lower House of Parliament and the internet consultation on the Introduction of a conditional withholding tax on dividends. For other tax-related issues 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.
Niels Groothuizen, Partner, Financial Services Tax Group
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Table of Contents
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1. Features of the 2021 Tax Plan and other announced tax measures and developments relevant for the FS sector
On Budget Day, September 15, 2020, the Dutch government presented the 2021 Tax Plan to the Lower House of Parliament, which consists of a cohesive set of legislative proposals setting out the government’s tax policy for the coming year. Unless otherwise indicated, the effective date of measures selected below is January 1, 2021; some additional measures that were announced at the same time, but that are not technically part of the 2021 Tax Plan, have also been included in this overview.
- No reduction of the high CIT rate from 25% to 21.7%, but instead extension of the SME bracket in two annual increments from EUR 200,000 to EUR 395,000 (with announced CIT rate reduction from 16.5% to 15% per 2021).
- Annual loss set-off maximized to 50% of taxable profits (with EUR 1 million threshold always available for set-off), combined with an unlimited carry-forward of losses. – as of 2022
- Codification of policy on the formation of a corona tax reserve and the conditions for this.
- Exclusion of Additional Tier 1 capital as equity for calculating a bank’s or insurance company’s capital under thin capitalization rules. In addition, percentage for the thin cap rule increased from 8% to 9%.
- One-off 50% increase of the bank tax rate to 0.066% on short-term debt (term less than 1 year) and 0.033% on long-term debt (term 1 year or longer) during financial years commencing in 2021.
- Limited crediting of dividend withholding tax against corporate income tax; limited to the amount of corporate income tax payable in a year. – as of 2022
- Change to interest deduction limitation rules prevent exempted income in cases with negative interest expense and/or positive foreign exchange results.
- Clarification in situations when hybrid mismatch structures overlap with EBITDA based interest deduction limitation.
- A bill will be presented during 2021 under which the arm’s length principle is not applied in situations in which the Dutch profit is reduced without taxation of a foreign corresponding adjustment.
- The liquidation and cessation loss schemes will be tightened as of financial years commencing on or after January 1, 2021.
- Ongoing investigations on the extension of information exchange obligations that currently only apply for financial service companies to also include holding companies that do not have sufficient substance in the Netherlands. (not part of the 2021 Tax Plan).
- The Dutch government has indicated it sees no reason to change the participation exemption rules for such holding companies that do not have sufficient substance.
- An investigation into the budget-neutral introduction of a net equity deduction, including a further tightening of the earnings stripping measure has been announced
Please click the following link for our reporting on and an overview of the measures included in the 2021 Tax Plan.
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2. Legislative proposal on pension schemes presented to the Lower House
On September 3, 2020 the Lump Sum Payment, Early Retirement Scheme and Leave Savings Scheme Bill (Wetsvoorstel bedrag ineens, RVU en verlofsparen) was presented to the Lower House of Parliament. This bill is part of the Pension Agreement. In this bill, the government elaborates on three of the agreements made: more freedom of choice in the use of the pension (lump-sum payment), more options for early retirement (easing of the early retirement levy; RVU-heffing) and more scope to utilize the tax relief for saving leave for the purposes of early retirement (leave savings scheme).
The Council of State has criticized the proposal. It contends that the announced measures are unlikely to offer much of a solution for employees in physically demanding occupations as they already have great difficulty working until the ‘old’ state retirement age of 65 years.
For more information on this matter, please read our tax alert on this matter or contact Jan Stigter, Jurgen Stormmesand or Michael van Gijlswijk.
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3. Advocate General of the Supreme Court: management of individual assets via investment profiles is subject to VAT
On September 23, 2020 Advocate General to the Supreme Court, Ms. Ettema, issued Opinions in two asset management cases. The primary question in these cases is whether the VAT exemption for the management of a special investment fund can also apply to individual asset management services whereby investments are pooled on the basis of investment profiles.
The AG believes both the Leeuwarden and Amsterdam Courts of Appeal have failed to sufficiently assess whether the assets of individual investors pooled in a central account is a ‘fund’ that is comparable to an undertaking for collective investment in transferable securities (hereinafter: UCITS), which qualifies for VAT purposes as a special investment fund. According to the AG, the VAT exemption moreover only applies if the ‘fund’ qualifies as a VAT taxable person (i.e. a VAT entrepreneur). She gives the Supreme Court in consideration to refer the cases to a Court of Appeal for further assessment.
Another question that is addressed in the AG’s Opinions is whether the taxpayers meet the requirement of specific state supervision arising from the Fiscale Eenheid X case (no. C‑595/13) of the Court of Justice of the European Union (hereinafter: CJEU). This is another requirement for applying the VAT exemption. The AG sees sufficient connecting factors for there to be specific state supervision.
For more information on this matter, please read our tax alert on this matter or contact Gert-Jan van Norden, Irene Reiniers or Jochum Zutt.
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4. Internet consultation on the Introduction of a conditional withholding tax on dividends Act
On September 25, 2020 the government launched an internet consultation to give interested parties the opportunity to respond to the draft bill to introduce a conditional withholding tax on dividends as of 2024.
After the government decided to cancel the replacement of the dividend withholding tax by a conditional withholding tax and the introduction of a conditional withholding tax on interest and royalty payments through the Withholding Tax Act 2021, a draft bill has been presented earlier this year to integrate elements of the originally proposed conditional dividend withholding tax into the current dividend tax. The intention of the draft bill is to expand the existing conditional withholding tax as of 2024 to also cover dividends.
An important difference with the current dividend tax is that cooperatives that do not qualify as a holding cooperative will also, in principle, be obliged to withhold the conditional withholding tax. Another difference is that there is no exemption for the redemption of shares if this entails a redemption for the purposes of temporary investment. A difference with the previously proposed, but later withdrawn, proposal for a conditional withholding tax on dividends is that no withholding tax will be levied on the sale of shares (unlike in the case of redemption) and that the possibility of the untaxed repayment of capital will remain intact under the same conditions that also apply to the current dividend tax.
An initial analysis of the draft bill leads to the expectation that the proposal, if it ultimately becomes law, will particularly impact cases where the dividend tax exemption currently does not apply, because the shareholder is established in a non-contracting country. If the non-contracting country is a designated low-tax jurisdiction, the tax rate on the group dividend will rise from 15% to 25%. Distributions by non-holding cooperatives to members in designated low-tax jurisdictions that currently do not fall under the dividend tax, will also be taxed at 25%.
For more information on this matter, please read our tax alert on this matter or contact Otto Marres or Fred van Horzen.
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By Decree dated September 29, 2020, the Dutch Deputy Minister of Finance repealed the Decree of August 29, 2017 that addressed the provision of hybrid loans. Under the latter Decree, lenders, in the event of bankruptcy or dissolution, share in the losses of the company in the same way as the (preference) shareholders; there is no relevant repayment obligation. The Decree considered this ‘debt liability’ to be a decisive feature of fiscal and commercial capital.
The reason for repealing this Decree is a judgment rendered by the Dutch Supreme Court on May 15, 2020, in which the Court ruled that if the provision of money cannot be regarded as a provision of share capital according to civil law, the existence of a repayment obligation determines the starting point for the tax classification.
This must subsequently be assessed according to the civil law form chosen for the provision of money: if a debt to a creditor exists, the provision of money generally cannot be regarded as providing capital for the purposes of tax law, even if the repayment is conditional or uncertain. The same applies if the agreement for the provision of money means that the lender shares the same ranking as the holders of preference shares in the borrower, when enforcing its rights in the event of bankruptcy or dissolution and liquidation of the borrower's assets.
As a result of this judgment, the Dutch Deputy Minister of Finance no longer considered this to be policy, meaning that the Decree lost its relevance and was repealed.
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