Netherlands: Bill to tax “excessive borrowing” of company’s substantial interest holders

Netherlands: Bill to tax “excessive borrowing”

The Deputy Minister of Finance on 17 June 2020 presented to the Lower House a bill, known in English as “Excessive Borrowing from Own Companies Act.”


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The measure—previously announced in September 2018 on “Budget Day” and subject to public consultation in March 2019—would provide that concerning substantial interest holders who borrow more than €500,000 from their company, the excess would be subject to tax as income derived from a substantial interest. Home acquisition debt would be excluded.

The measure would be effective for the calendar year 2023, one year later than originally planned. Substantial interest holders who borrow more than €500,000, therefore, would have to review their positions before that date.


The government intends to use the measure to address the deferral of tax for individual (personal) income tax purposes in Box 2 and to bring taxation more in line with the time at which the substantial interest holders (or any person related to such person) actually has the funds at their disposal.

The taxation of the substantial interest would be brought forward. If more than €500,000 is borrowed from the person’s own company, the excess would be taxed as a deemed ordinary benefit at the end of the calendar year (the excessive part of the debt) in Box 2 in the hands of the substantial interest holder and life partner. Debt is defined as all civil-law indebtedness and commitments at the end of the calendar year on the basis of nominal value. The maximum amount of €500,000 would apply in this respect to the substantial interest holder and life partner. Loans from multiple companies in which a substantial interest is directly or indirectly held would be added together.

KPMG observation

The scope of the measure would be limited to the substantial interest rules. This means that the measure would not affect Box 1 and Box 3 as regards individual income tax, dividend withholding tax, and corporate income tax. This is intended to keep enforcement costs as low as possible, but some question whether the desired effect could be achieved.

The measure has no civil law significance. The loan would generate deemed income in Box 2, but would continue to exist for civil-law purposes, so interest still would have to be taken into account and the repayment of the debt would be required at some point. For the company (the creditor) this means that the value of the receivable from the shareholder (the debtor) as it appears on the balance sheet for tax purposes would not change as a result of this measure and that the creditor would also regularly take into consideration the interest on the substantial interest holder’s excessive part of the loan and must account for this in its income statement. If the debt falls in Box 3, it would reduce the capital yield tax base for income from savings and investment.

The “Explanatory Memorandum” reveals that current case law on loans and home acquisition debt would continue to apply in full. In short, this means that if it is established that the debt cannot or will not be repaid, a deemed dividend distribution would be assumed and the tax on the substantial interest would have to be paid. This treatment would apply to both debt in excess of and below €500,000. If there is a deemed dividend distribution that can also be regarded as excessive debt, tax would only be levied once.

Read a June 2020 report prepared by the KPMG member firm in the Netherlands

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