Dutch Cabinet presents possible ‘building blocks’ for future tax system

25/05/20

The Dutch Ministry of Finance, in collaboration with other departments, has conducted research into how we can make our tax system better and future-proof. The study is comprehensive: it concerns ten different studies based on seven bottlenecks in the current tax system. The investigations resulted in an official report without political guidance, with the aim of providing detailed policy options to the next Cabinet. The report consists of 169 ‘building blocks’ from which political parties can choose. The report was sent to the House of Representatives on Monday, May 18, 2020.

What does this possbly mean for your organisation?

The report has not yet resulted in any concrete (legal) changes. It contains exploratory ideas that may or may not be converted into concrete measures by a next Cabinet. Moreover, the ideas do not form a whole: some of the ideas are supplementary, other ideas exclude each other. This, however, does not alter the fact that the implementation of certain policy options can have major consequences. Nevertheless, it is far too early to estimate which measures may be enacted.

Bottlenecks current tax system

The report lists seven bottlenecks in the current tax system:

The increasing tax burden on labor for employees;
The onset of ‘policy exhaustion’;
The emergence of the flex and platform economy requires the adjustment of law and implementation;
Uneven taxation of wealth resulting in arbitration and deferral;
Taxing profits (nationally) is becoming increasingly difficult;
Damage to climate and health is insufficiently priced; and
Decreasing effectiveness of national taxation.

Based on the seven bottlenecks mentioned above, ten different studies have been carried out on the current tax system. The studies looked at wage and income taxes (boxes 1, 2 and 3), corporate tax, environmental taxes, health-related taxes, gift and inheritance taxes and local (municipal) taxes. A number of specific themes have also been researched: the so-called “Dutch tax mix”, the theme of simplification, the emergence of digital platforms and the role of Europe in the tax system.

The ten different studies resulted in the following study reports:

The Dutch tax mix;
Taxation of income in box 1;
Taxation of income from odd jobs;
Taxation of (income from) substantial interests;
Taxing wealth;
Environmental taxes and base erosion;
Health-related taxes;
Taxation in Europe;
Review of municipal tax system;
Simplification of the tax system.

In order to provide guidance to the next Cabinet with respect to the subjects mentioned above, 169 policy subjects for a future tax system have been developed, called “building blocks”. Part of the policy options is also based on the recently published report of the Advisory Committee on the Taxation of Multinationals about which we wrote an article, and on the report of the Committee on the Regulation of Work published previously.

As indicated, it is up to the next Cabinet whether to use these “building blocks” or not for a new or a modified tax system. The authors of the reports do note that the building blocks have been completed before the COVID-19 crisis, and that the COVID-19 crisis will have major effects on society, the economy and the resolution of the bottlenecks described in the reports. However, this does not alter the aim to resolve the bottlenecks in the tax system in the medium to long term.