Directive (EU) 2016/1164, laying down rules against tax avoidance practices, also known as the first Anti Tax Avoidance Directive, or ATAD 1, has been implemented by the Netherlands, with effect of January 1st, 2019.
This news alert briefly touches on a few changes in Dutch tax laws based on the implementation of ATAD 1.
Interest - earnings stripping rule
Deduction of interest costs has been limited. Net interest costs (paid interest minus received interest) can be deducted to a maximum of 30% of the fiscal EBITDA. However, up to the amount of EUR 1 million interest costs can be deducted with no limit. Interest exceeding the limit, may be deducted in years ahead, for which the same limitations apply (up to 30% of the fiscal EBITDA/ up to EUR 1 million).
Passive income - Controlled Foreign Company
A Controlled Foreign Company (CFC) is a foreign company which is controlled by a Dutch taxpayer for more than 50% and which is subject to a jurisdiction in which there is no Corporate Income Tax (CIT) or a CIT lower than 9% or which jurisdiction is on the EU list of non-cooperative jurisdictions for tax purposes. This list has last been updated on March 12th, 2019, and includes the following 15 jurisdictions on its blacklist:
- American Samoa
- Trinidad and Tobago
- US Virgin Islands
- Marshall Islands
- United Arab Emirates
Certain ‘passive’ benefits of CFC’s, such as interest, royalties and dividends, might be taxed as profits of the Dutch taxpayer. Exceptions to this rule apply: If the ‘passive’ benefits make up less than 30% of the total income, if these benefits have been distributed before the end of the year or if the CFC has sufficient substance in its jurisdiction. Sufficient substance is met if the CFC has wage costs in the minimum amount of EUR 100,000 and office space for at least two years.
Exit tax – payment in five annual installments
If a company or its assets are transferred abroad as from 2019, any Dutch exit tax must be paid in five annual payments. The current Dutch tax system already had rules regarding exit taxes, whereby before the implementation of ATAD 1 it was possible to delay payment of exit tax up to ten years. Based on ATAD 1, exit tax must now be paid in five yearly payments.
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