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Netherlands — General corporate tax cut cancelled

Netherlands — General corporate tax cut cancelled

However, the Netherlands’ 2021 tax plan confirms a reduced lower corporate income tax rate

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While the Netherlands has cancelled its planned general corporate income tax rate reduction, it will still reduce the lower corporate income tax rate and increase the taxable income threshold that it applies to, according to the country's latest budget. The budget, which was presented on September 15, 2020, includes several corporate and international tax measures that may affect Canadian multinationals that do business in the Netherlands as early as January 1, 2021. The budget also proposes an unlimited loss carryforward period, a potential "corona tax reserve", clarifications and adjustments to interest deductibility rules and several other measures of interest for multinationals.

Corporate measures

The Netherlands has cancelled its previous plan to reduce the general corporate income tax rate to 21.7% (from 25%) as of January 1, 2021. As a result, the general corporate income tax will remain at 25%.

However, the Netherlands confirms it will go ahead with its previously announced plans to reduce the low corporate income tax rate to 15% (from 16.5%), effective January 1, 2021. The Netherlands also announced an increase to the threshold for the low corporate income tax rate, which will apply to taxable income up to €245,000 in 2021 (up from €200,000, currently) and to taxable income up to €395,000 as of January 1, 2022.

The budget also proposes several other corporate tax measures, including the following:

  • Indefinite loss carry-forward period subject to setoff limitations—The budget proposes an unlimited carry-forward loss setoff as of January 1, 2022 (currently there is a carry-forward period of six years)
    • No changes are proposed to the one-year carry-back period
    • Losses will only be fully available for carry-forward and carry-back set off up to an amount of €1 million of taxable profit
    • In the case of a higher taxable profit, the losses will only be able to offset up to 50% of that higher taxable profit
  • Corona tax reserve—The budget introduces the possibility of creating a "corona tax reserve" to be deducted from certain corporate profits for 2019, subject to certain conditions
  • Clarifications to address hybrid mismatch overlap—The budget includes clarifications related to overlap between hybrid mismatch measures and certain interest deduction limitations
  • Changes to specific interest deductibility limitation rule—The budget announces changes so that the specific interest deduction limitation can no longer result in an exemption for negative interest or foreign exchange profits, as of January 1, 2021
  • Tightening liquidation loss rules—The budget introduces restrictions on losses exceeding €5 million, effective January 1, 2021
  • Changes to thin cap rules—This budget measure is applicable for banks and insurers and may affect the computation of capital and includes an increase in the percentage for the thin cap rule to 9% (from 8%), effective January 1, 2021
  • New environmental taxes—This budget proposal includes measures for a new CO2 tax on industrial emissions, effective as of January 1, 2021

Notably, the Netherlands also confirms it will increase the innovation box effective tax rate to 9% (from 7%) for financial years beginning on or after January 1, 2021 (this echoes the Netherlands' 2020 budget.

Limitations on transfer pricing adjustments

The Netherlands says it plans to present a bill to the Lower House of Parliament in the spring of 2021, which will ensure that the arm's length principle is, in effect, not applied if this results in a reduction of taxable profit in the Netherlands, to the extent the other country does not tax the corresponding adjustment.

Withholding tax

As previously announced in the Netherlands' 2019 budget, a new withholding tax for certain payments of interest and royalties will apply as of January 1, 2021. This withholding tax would apply to cash flows to countries with a profit tax rate of less than 9% that appear on the Dutch blacklist and to countries appearing on the EU list of non-cooperative jurisdictions. However, because the Netherlands' withholding tax rate on interest and royalties is linked to the general corporate income tax rate (which is not being reduced as planned), absent a change in law, the withholding tax rate will be 25% (not the expected, lower, rate of 21.7%).

Legislation is also expected in the spring of 2021 to introduce a previously announced conditional withholding tax on dividends paid to shareholders resident in low-tax jurisdictions or blacklist jurisdictions. The new dividend withholding tax would apply as of 2024.

For more information, contact your KPMG advisor.

Information is current to September 29, 2020. 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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