Budget Day 2021
On Budget Day, the budgetary plans for 2022, including the Tax Plan, were presented to the Dutch House of Representatives. Important themes for the coming year include investing in housing, innovation and restoring consumer purchasing power. What effects will these plans have in practice?
Budget Day 2021 was unusual for a number of reasons. The main difference with previous years, aside from COVID, is that the Netherlands currently has a caretaker-Cabinet. This means that, aside from a number of stop-gap measures and some previously announced implementations and regulations, the tax plans do not contain any major changes or revisions. Such measures will be left to the incoming Cabinet, once the formation has been completed.
Tax Plan 2022
The Tax Plan 2022 consists primarily of repairs to existing measures and revisions of previously announced legislative proposals. Baker Tilly’s tax advisors have summarised the most important measures and proposals. Please note that this English selection is aimed at an international audience; for a more extensive overview of the plans, please read our Dutch summary or contact your Baker Tilly tax advisor.
How will these measures affect you?
Of course you will want to know what the measures will mean for your specific situation. We advise you to reach out to one of our tax advisors so that they can talk you through the consequences of the measures for you or your business. Baker Tilly has offices throughout the Netherlands. Find an office in your area.
Please note: the proposals have not yet been approved
The measures and changes are legislative proposals, unless mentioned otherwise. The proposals have yet to be approved by the House of Representatives and the Senate. Please note: the proposals may still be subject to changes.
Reverse hybrid entities to become subject to Dutch corporate income tax
A reverse hybrid entity is a partnership incorporated in accordance with Dutch law (often a limited partnership or commanditaire vennootschap) of which at least half of the participants are resident abroad. From the perspective of the foreign State, it is assumed that the Netherlands will tax the profits of that hybrid entity, while the Netherlands ignores the hybrid entity for tax purposes and does not levy taxes. The Netherlands and the foreign State therefore treat the hybrid entity differently for the purpose of taxation
As of 2022, the Netherlands will no longer ignore these reverse hybrid entities, which will therefore become subject to, amongst others, Dutch corporate income taxation. Additionally, the hybrid entities will be obligated to withhold dividend tax and source tax, and they will furthermore be able to benefit from tax treaties. This legislative change is the last step in the process of the mandatory implementation of the European Anti-Tax Avoidance Directive 2 (ATAD2).
Employee can choose moment of taxation share options
Employers sometimes offer employees share options in addition to the normal wages. Employees must pay taxes on these share options, as they also constitute wage income. New rules were included in the Tax Plan 2022, regarding the moment taxes are levied. The taxes should be paid at the moment the shares received become tradable, unless the employee chooses to pay taxes at the moment the share option is exercised. This prevents liquidity problems for employees.
Restriction of benefit from international differences in transfer pricing regulations
The arm’s length principle determines that affiliated parties should do business under the same conditions as they would have agreed upon with independent third parties. Different States may apply the arm’s length principle in different ways. Consequently, internationally operating companies can make use of differences in the transfer pricing legislation of various States. This could lead to a situation in which group profits are not taxed anywhere. A legislative proposal presented on Budget Day should bring an end to this situation.
As of 1 January 2022, the Netherlands will deny a downward transfer pricing correction of Dutch fiscal profits, in cases where there is no corresponding increase of the taxable result abroad.
If assets are transferred to an affiliated Dutch taxpayer from abroad, they are included on the Dutch balance sheets at fair market value. This value is often higher than the (old) book value used abroad. This means that higher depreciation costs can be taken into account in the Netherlands. As of 1 January 2022, such situations will be subject to a restriction on the depreciation costs if no taxes have been levied abroad with regard to the higher fair market value, upon the transfer. This applies to all assets transferred since 1 January 2019.
Rules for order of offsetting taxation of controlled foreign companies
If a corporate income taxpayer has an interest in a controlled foreign entity or a foreign permanent establishment (‘controlled foreign company’ or CFC) and this CFC is established in a particular low-taxed jurisdiction, the passive income of that CFC is subject to Dutch corporate income taxation. Under certain conditions, the taxes on profits that the CFC has paid locally, can be offset against the Dutch corporate income tax due. This offsetting is determined per CFC, and cannot exceed the Dutch corporate income tax due. In some cases, this leads to a carry-forward of offsettable foreign profit taxes to later years.
If a taxpayer has multiple CFCs, the order in which foreign profit taxes should be offset is not set. It is proposed that as of 1 January 2022, offsetting takes place in order of increasing size. In other words, the lowest amount of foreign profit taxes is offset first, and the largest amount is offset last.
Lower customary wage for director-majority shareholder of innovative start-up
In the Netherlands, a director-majority shareholder is obligated to award himself customary wages for the work performed for his company. The customary wage is determined based on the wages of the most comparable employment, the wages within the company and a set minimum amount.
This customary wage rule may disproportionately affect the liquidity position of innovative start-ups. In order to encourage innovation, the customary wage rule includes a possibility for lowering the customary wage to the level of the legal minimum wage, if certain preconditions are met. The Budget Day plans include a proposal to extend this possibility until 1 January 2023.
Working-from-home coffee allowance
As of 1 January 2022, you can provide your employees with a tax-free allowance for extra expenses incurred as a result of working from home. Examples are expenses for electricity and water, heating, coffee or tea, and toilet paper. This tax-free allowance will be a specific exemption within the system of the labour cost arrangement (Werkkostenregeling or WKR), and will allow for a maximum allowance of EUR 2 per employee per day worked from home. Alternatively, you may offer a fixed working-from-home allowance, amounting to EUR 7 per month for one day a week working from home.
If you would like to make use of this specific exemption, please note that it is important that you designate the expenses as wages for final tax levy, and that you keep a written record of which days your employees work from home.
Beware: It is not possible to pay out a working-from-home allowance on days for which your employee also receives a (fixed) tax-free travel expenses allowance. Both allowances may be applied simultaneously in cases of so-called ‘hybrid working’, as long as the allowances are applied pro rata. However, in such cases you must make arrangements with your employee regarding the number of days spent working from home and at the office.
Temporary expansion of Discretionary Margin Labour Cost Arrangement due to COVID
In 2020 and 2021, the Cabinet increased the discretionary margin in the labour cost arrangement, in order to offer employers more room to reward their employees in these difficult times. It is proposed to retroactively codify this increase of the first bracket (3% of the first EUR 400,000 of the total fiscal wages).
The expansion of the discretionary margin only covers calendar years 2020 and 2021. This means you should expect, for now, that the discretionary margin for the year 2022 will be 1.7% of the first EUR 400,000 of the total fiscal wages. The discretionary margin over the excess wages is 1.18%
Changes to tax credit for employees with a partner abroad
The Dutch personal income tax system includes compensation for working parents, in the form of the income-dependent combination credit (inkomensafhankelijke combinatiekorting or IACK). Only specific taxpayers, who have either no fiscal partner or a fiscal partner with a higher income, are eligible for this credit.
For taxpayers who work in the Netherlands but live abroad, their partner abroad does not qualify as a fiscal partner unless that partner is considered a qualifying foreign taxpayer. In order to prevent such taxpayers from qualifying for the IACK, the scheme will be adjusted in such a way that the foreign partner will be taken into account during the assessment of eligibility for this credit.
Introduction of kilometer-based charge for heavy goods vehicles in 2026
Shortly before Budget Day, a legislative proposal was introduced for a heavy goods vehicle charge. If the proposal is approved, Dutch and foreign heavy goods vehicles (weighing in excess of 3,500 kg including loading capacity) will become subject to a kilometer-based charge in the course of 2026. The kilometer-based charge applies with regard to motorways and a number of other roads (primarily N-roads). The rate amounts to an average of EUR 0.149 per driven kilometer, and is dependent on amongst other things the weight and the environmental characteristics of the heavy goods vehicle. The payable kilometers will be registered using on-board equipment.
Upon the introduction of this new charge, the existing 'motor vehicle tax will be reduced for heavy goods vehicles, and the Eurovignette will be abolished. The proceeds of the heavy goods vehicles charge will be used in aid of sustainability and innovation of the transport sector.
Increase of lower tax bracket
In 2021, the lower tax rate of corporate income tax was lowered to 15% over profits up to EUR 245,000. As of 2022, this tax bracket will be significantly increased, to EUR 395,000. The tax rate will remain 15%.
This adjustment means that, for example, a company (besloten vennootschap) with an annual profit in excess of EUR 245,000 will pay less tax (this benefit could amount to as much as EUR 15,000). In order to make optimal use of the adjusted tax rate, it may under certain circumstances be beneficial to (partially) terminate an existing fiscal unity.
Loss relief - expansion and restriction
As of 1 January 2022, the rules on the use of losses in corporate income taxation will change. This plan was included in the 2021 Tax Plan. Carry-forward of losses will be restricted insofar as profits exceed EUR 1 million. Such profits can only be offset at a rate of 50%. Profits up to EUR 1 million can be fully offset.
The temporal restriction on carry-forward loss utilisation (previously 6 years) will be abolished. Consequently, there will be no temporal restriction on the carry forward of losses incurred since 2013. The period for carry-back offsetting remains 1 year.
Changes to use of holding company losses
Losses incurred before 2019 by entities whose activities consisted entirely or almost entirely of holding or financing activities, can, in principle, only be offset against profits from holding or financing activities. On 11 June 2021, the Dutch Supreme Court ruled that such holding losses may in certain cases be offset against ‘normal’ profits from for example operational activities. This is due to a convergence with the Dutch fiscal unity regime. Legislation was announced on Budget Day to prevent this way of offsetting holding losses.