Introduction

On the 21st of September the Tax Plan 2022 has been presented to the Dutch parliament. During the debates the following days a resolution has passed parliament on the 23rd of September to amend the recently presented Dutch Budget for 2022.

The resolution calls for an increase of expenditures in a number of public areas in the Netherlands. To finance this spending, there would have to be an increase in governmental revenue as well. Therefore,  summarized, the following legislative changes have been proposed:

  • Tightening of the earnings stripping rules by decreasing the deductible interest to a maximum of the EBITDA of 20% instead of 30%; and
  • An increase of the highest Dutch corporate income tax rate from 25% to 25.8%.

Background

The earnings stripping rule limits the interest deduction, insofar net interest expenses exceed the highest of (i) €1 mio, or (ii) 30% of the fiscal EBITDA. The proposed change would decrease the threshold percentage of the EBITDA from 30% to 20%, which results in a potential disadvantage for taxpayers.

According to the Dutch government, decreasing the threshold to 20% would realize a more equal fiscal treatment of equity and debt as well. In the communication of the European Commission dated the 18th of May 2021 – ‘Business Taxation for the 21st Century’ – a proposal has been published for a multilateral introduction of a capital deduction, or, alternatively, the further multilateral restriction of the deductibility of interest. The proposed decrease to 20% would be in line with the further restriction of the deductibility of interest envisaged by the European Commission.

When the earnings stripping rule entered into effect in 2019, the risk was envisaged that taxpayers would split entities (or fiscal unities) in order to apply the threshold of €1 mio several times (instead of one time). In practice it seems that this tax driven behavior indeed takes place, as a result of which it will be taken into consideration when tightening the earnings stripping rule.

Moreover, it is discussed to increase the highest Dutch corporate income tax rate from 25% to 25.8% in order to fund a salary increase in the health care sector.

Way forward

The formal legislative process in respect of the above proposal needs to be finalized, but it appears to be very likely that these changes will be formalized. If so, it is expected that the new rules will enter into effect by 1 January 2022.

Please feel free to contact your RSM advisor in case of questions.