Netherlands: Status of proposal to tighten earnings stripping rule

A proposal included in the 2022 Tax Plan would reduce the 30% of fiscal EBITDA to 20%

A proposal included in the 2022 Tax Plan would reduce the 30% of fiscal EBITDA to 20%

The current earnings stripping rule limits an entity’s interest deduction to 30% of earnings before interest, taxes, depreciation, and amortization (EBITDA) or €1 million, whichever is greater. A proposal included in the 2022 Tax Plan would reduce the 30% of fiscal EBITDA to 20%, which would entail a further limitation of the deductibility of interest for companies.

The proposal was amended in October 2021. Read TaxNewsFlash

The interest expense part that cannot be used based on this rule would be allowed to be carried forward indefinitely to future years. The non-deductible interest expenses could then—under certain conditions—be used in future years. As such, for companies that are dealing with non-deductible interest under this rule, recognition of a deferred tax asset would need to be considered.

Certain sources of income would need to be considered for recognition of a deferred tax asset in relation to non-deductible interest such as the reversal of (qualifying) deferred tax liabilities or sufficient future taxable profit.

If the final version of the 2022 Tax Plan is enacted in December 2021, the proposal would be expected to be effective 1 January 2022. There could be financial statement implications depending on the date of enactment.

Read a November 2021 report prepared by the KPMG member firm in the Netherlands

 

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