Tax Accounting impact Budget Day 2023 – Tax Plan 2024

1) Dividend stripping

The term 'dividend stripping' encompasses both fraud (when dividend tax is reclaimed or offset twice) and tax planning (when dividend tax is reclaimed or offset by a party that, from an economic perspective, has no genuine interest in the dividend itself). While fraud is already prohibited, the practice of tax planning is also considered undesirable.

As such, there is a need to strengthen the measures against dividend stripping. Dividend tax allowances (such as set-off, refund, or reduction) already apply solely to dividend recipients who are the true beneficial owners of the dividend. The responsibility for proving this will shift to the dividend recipient. For dividend tax amounts up to 1,000 EUR per year, the burden of proof will continue to rest with the tax inspector to maintain efficiency.

Additionally, the registration date in the Dividend Tax Collective Decree (in Dutch: "Verzamelbesluit Dividendbelasting") will be legally established for listed shares. For more detailed information on this topic, please refer to our Tax News article.

These measures to combat dividend stripping will likely result in companies being less able to credit withholding tax on their portfolio investments and as such will (likely) lead to a higher effective tax rate (ETR).

2) Policy adjustment act for the qualification of foreign legal forms 

The current tax qualification process for foreign legal forms is administered through a decree, but there are upcoming changes. This decree will be replaced by formal legislation known as the Tax Qualification Policy for Legal Forms Act (in Dutch: "Wet fiscaal kwalificatiebeleid rechtsvormen"). Several substantive alterations are on the horizon, and this new legislation takes effect from 1 January 2025.

For foreign legal forms that closely resemble Dutch entities, the qualification process will persist using the legal form comparison method. Additionally, two new methods will be introduced for foreign legal forms that are not comparable to Dutch entities: the 'symmetrical method' and the 'fixed method'.

The Act also eliminates the distinction between open (non-transparent) and closed (transparent) limited partnerships. The proposal aims to make all limited partnerships transparent in the future, indirectly addressing the goal of reducing hybrid mismatches in international contexts.

The transition from a non-transparent to a transparent limited partnership will be considered a notional transfer and discontinuation. Four transitional measures are proposed to address the consequences: (i) a roll-over facility, (ii) a stock merger facility merger facility, (iii) a roll-over facility in the case of taxable income from the provision of goods, and (iv) a payment deferral. Please refer to our Tax News article for more information on this issue. 

This measure is to combat hybrid mismatches (i.e. double deduction and deduction with no inclusion) and will likely give rise to less permanent non-deductible items based on ATAD 2, and as such could lead to a lower ETR. 

In addition, the transition from non-transparent to transparent without the use of the transitional rules could trigger a current tax impact.

5) The Bill Minimum Taxation Act 2024 (Pillar Two) 

The Bill Minimum Taxation Act 2024 (the Bill), also known as Pillar Two, provides for a minimum ETR of 15% per jurisdiction for large international enterprises and EU-based large-scale purely domestic groups with (global) annual turnover exceeding 750 million euros. For the Netherlands (and other EU-countries), Pillar Two will enter into force as of 31 December 2023 and will first apply to financial years starting on or after this date.

The draft Bill was presented to the House of Representatives on 31 May 2023. Like the 2024 Tax Plan, the Senate adopted this bill on 19 December 2023.

On 23 May 2023, the International Accounting Standards Board published the final amendments to IAS 12 Income Taxes, and introduced (i) a temporary mandatory exception to recognising deferred taxes stemming from Pillar Two and (ii) new disclosure requirements effective for annual reporting periods beginning on or after 1 January 2023.

The new disclosure requirements prescribe that, in periods in which Pillar Two legislation is enacted or substantively enacted but not yet in effect (i.e., the year 2023), a reporting entity shall disclose the known or reasonably estimable (both qualitative and quantitative) impact of Pillar Two in the financial statements. To the extent the impact is not known or cannot be reasonably estimable, a reporting entity shall instead disclose a statement to that effect and disclose information about the entity’s progress in assessing its exposure. Therefore, this new disclosure requirement should already be considered during the preparation of the 2023 financial statements.

For periods in which Pillar Two legislation is in effect (i.e., the year 2024 and onwards), the new disclosure requirements prescribe that a reporting entity shall disclose separately its current tax expense (income) related to Pillar Two income taxes in the financial statements.

6) Conditional Withholding Tax on Dividends (already enacted at an earlier date, effective as of 1 January 2024)

A new Conditional Withholding Tax (CWHT) rule, a withholding tax will be levied on (i) dividend payments to low-tax jurisdictions (i.e. countries with a statutory profit tax rate lower than 9%), (ii) dividend payments to jurisdictions that are included on the EU list of non-cooperative jurisdictions and (iii) dividend payments to hybrid entities and artificial structures intended to avoid Dutch withholding tax on dividends (i.e. abuse situations).

The rate of the CWHT on dividends is linked to the highest rate of the Dutch corporate income tax (CIT) (currently 25.8%). The proposed CWHT on dividend payments will be a new tax that will exist besides the regular Dividend Withholding Tax Act 1965 (rate: 15%). As a result, these taxes may apply simultaneously on the same dividend payment under certain circumstances. For these situations, the new CWHT rule provides for an anti-accumulation scheme that could be applied so that effectively a maximum rate of 25.8% is applied.

IFRS prescribes that current and deferred taxes are measured based on the tax rates and tax laws that have been “enacted” or “substantively enacted” by the end of the reporting period. As the status of the legislative proposal is considered to be “substantively enacted” as per 2 November 2021, the tax implications of the new CWHT rule should be considered for reporting periods ending on or after this date. 

Dividend payments made by a Dutch entity to low-tax jurisdictions may be subject to withholding tax. Although the CWHT is levied at the level of the Dutch distributing entity, the actual burden of the CWHT lies at the level of the (foreign) recipient of the dividend. From a tax accounting perspective, the applicability of the CWHT could result in an increase of the ETR of the (foreign) recipient.

In addition, an analysis should be made whether the (foreign) recipient should account for the potential CWHT claim (i.e. deferred tax liability (DTL)) on the undistributed profits of its Dutch subsidiary (i.e. outside basis difference) in its financial statements pursuant to IAS 12.39. If, for instance, the conclusion of the analysis performed is that no DTL should be recognised at the level of the recipient, then it is also relevant to note that IFRS has a disclosure requirement on the aggregate amount of unrecognised DTLs on outside basis differences (IAS 12.81 (f)).