Netherlands: Implications of 2021 tax plan for financial services sector

Netherlands: Implications of 2021 tax plan

There are proposals in the 2021 tax plan that may affect the financial services sector.

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The 2021 tax plan, presented on Budget Day (15 September 2020), consists of a cohesive set of legislative proposals setting out the government’s tax policy for the coming year. In general, the proposed effective date of the following measures would be 1 January 2021:

  • No reduction of the corporate income tax “high rate” from 25% to 21.7%, but instead an extension of the small to medium enterprise (SME) bracket in two annual increments from €200,000 to €395,000 (with announced corporate income tax rate reduction from 16.5% to 15% by 2021)
  • Annual loss set-off maximized to 50% of taxable profits (with €1 million threshold always available for set-off), combined with an unlimited carry-forward of losses (as of 2022)
  • Codification of policy on the formation of a coronavirus (COVID-19) tax reserve and related conditions
  • Exclusion of additional tier 1 capital as equity for calculating a bank’s or insurance company’s capital under thin capitalization rules; also percentage for the thin cap rule to be increased from 8% to 9%
  • One-off 50% increase of the bank tax rate to 0.066% on short-term debt (term less than one year) and 0.033% on long-term debt (term one year or longer) during financial years commencing in 2021
  • Limited crediting of dividend withholding tax against corporate income tax; limited to the amount of corporate income tax payable in a year (as of 2022)
  • Change to interest deduction limitation rules prevent exempted income in situations with negative interest expense and/or positive foreign exchange results
  • Clarification when hybrid mismatch structures overlap with EBITDA* based interest deduction limitation
  • Arm’s length principle not applied in situations in which the Dutch profit is reduced without taxation of a foreign corresponding adjustment
  • Liquidation and cessation loss schemes to be tightened as of financial years beginning on or after 1 January 2021
  • Ongoing investigations on the extension of information exchange obligations that currently only apply for financial service companies to also include holding companies that do not have sufficient substance in the Netherlands (not part of the 2021 tax plan)
  • No change to the participation exemption rules for holding companies that do not have sufficient substance
  • An investigation into the budget-neutral introduction of a net equity deduction, including a further tightening of the earnings stripping measure

Read an October 2020 report prepared by the KPMG member firm in the Netherlands


* EBITDA =  earnings before interest, taxes, depreciation, and amortization-based interest limitation deduction 

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