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Netherlands Eases Off Planned Corporate Rate Drops

Netherlands Eases Off Planned Corporate Rate Drops

Dutch budget reduces planned cuts to the general corporate income tax rate, among other changes.


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The Netherlands has eased back its planned corporate income tax rate reductions, according to the country's latest budget. The budget, which was presented on September 17, 2019 includes several corporate and international tax measures, including a revised schedule for corporate rate reductions and more restrictive withholding tax measures that may affect Canadian multinationals that do business in the Netherlands.

Corporate measures

In its budget, the Netherlands says that it will maintain its corporate income tax rate for profit in excess of EUR 200,000 at 25% in 2020, to be reduced to 21.7% in 2021. This planned reduction is less than previously projected, as the Netherlands proposed in October 2018 to reduce the tax rate to 20.5% in 2021. For profit up to and including EUR 200,000, the Netherlands confirms it will reduce its corporate income tax rate to 16.5% in 2020 and to 15% in 2021.

The budget also includes additional corporate measures to:

  • Introduce an interest deduction limitation for banks and insurers as of January 1, 2020 (i.e., a thin cap rule)
  • Change the domestic definition of "permanent establishment" to align with the applicable treaty definition (or the OECD definition in non-treaty situations)
  • Consider procedural earnings stripping changes related to the carry-forward of non-deductible interest.

The budget also says the Netherlands intends to increase the effective tax rate in the Innovation Box to 9% (from 7%) as of 2021.

Withholding taxes

The budget announces that the Netherlands intends to charge 21.7% withholding tax on interest and royalties paid by an entity established in the Netherlands (including a Dutch permanent establishment of a foreign entity) to affiliated entities established in low-taxed countries, starting in 2021. Low-taxed countries include those with a corporate tax rate of less than 9%, as well as countries which appear on the EU list of non-cooperative jurisdictions. The withholding tax is also proposed to apply to certain other abuse situations. Notably, it is irrelevant whether the paying entity has substance in the Netherlands, or whether the recipient has substance in the low-taxed country.

In addition, the budget removes the existing safe harbors for meeting substance requirements for purposes of dividend withholding tax exemptions, foreign substantial interest rules and Controlled Foreign Companies rules, as of January 1, 2020.

For more information, contact your KPMG advisor.

Information is current to September 24, 2019. The information contained in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's National Tax Centre at 416.777.8500

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