Finance Bill 2020 – Finance Bill 2020, ATAD2 and DAC6 adopted

15/11/19

On 14 November 2019, the Lower House of Representatives adopted the Tax Plan 2020 and the legislative proposals ATAD2 and DAC6. As a result, a number of tax topics will change for you as of 1 January 2020 (or 1 January 2021). Please find a full overview of these changes on our 2020 Tax Plan page.

What does this possibly mean for your company / your organisation?

The changes in Dutch tax legislation can have consequences for you and/or your company. Examples of these are the accelerated transition to the dual-income tax bracket system in the personal income tax, the limitation of the mortgage interest deduction and a number of other deductions in the personal income tax, the change in the tonnage regime for ships, the introduction of a conditional withholding tax on interest and royalties, the fight against hybrid mismatches in cross border situations and the restriction of the liquidation loss scheme in the corporate income tax.

What are the next steps?

It is now up to the Senate to consider the legislative proposals. The Senate cannot amend the bills, but can only approve or reject a bill in its entirety.

The discussion of the Tax Plan 2020 and the legislative proposals for the implementation of ATAD2 and DAC6 in the Senate is planned for 10 December 2019. The vote will also take place on 10 December, or otherwise no later than 17 December, so that the measures can enter into force as from next year.

On our 2020 Tax Plan page you will also find the (final) state of affairs after the vote in the Senate.

ATAD2

As of January 1, 2020, the rules of the European anti-abuse directive ATAD2 will be implemented in Dutch legislation. This directive (and the Dutch legislation) focuses on combating certain forms of tax planning that make use of so-called ‘hybrid mismatches’.

Entities, (financial) instruments, permanent establishments or the location of an entity can sometimes be qualified differently by different (EU) countries. As a result, a situation may arise that, for example, a payment is deducted in two countries, or is deducted in one country but is not taxed in another country. The ATAD 2 directive and the new Dutch legislation are aimed at preventing such situations. The ATAD2 directive and the new Dutch legislation apply to situations between the EU member states and to situations between EU member states and third countries as well.

Introduction of conditional withholding tax on interest and royalties

As of January 1, 2021, a new conditional withholding tax on interest and royalty payments will be introduced. The withholding tax will be levied on interest and royalty payments to affiliated entities in designated low-tax jurisdictions and in abusive situations. During the proceedings in the House of Representatives, the government emphasized that the purpose of the new withholding tax is to prevent the Netherlands from being used any longer as a gateway for interest and royalty flows to low-tax jurisdictions and in abusive situations.

Low-tax jurisdictions are jurisdictions with a statutory corporate income tax rate of nine percent or less. The effective rate in a country is not relevant: ideally that would be the case, but according to the government that would require extremely complex legislation.

Liquidation loss scheme

Pursuant to the participation exemption in the corporate income tax law, benefits related to a participation are eliminated from the profits of the company that gains from these benefits. This applies to both positive (gains) and negative (loss) benefits. However, one exception applies to the deductibility of negative benefits, namely the so-called ‘liquidation loss scheme’.

The liquidation loss scheme implies that when a participation is liquidated, the loss that is thereby incurred is tax deductible. This summer, the House of Representatives presented an initiative bill to amend the liquidation loss scheme. According to this bill, the liquidation loss scheme will be limited to participations in EU and EEA member states. Certain (financial and share ownership) thresholds will apply as well.

Although the proposals regarding the liquidation loss scheme are (strictly speaking) not part of the Finance Bill 2020, the government announced on Budget Day 2019 that it will adopt the initiative bill of the House of Representative. A final bill is not expected before the summer of 2020. A motion submitted by House of Representatives to bring forward the parliamentary consideration of such a bill, was however voted against.

Tonnage regime

In response to comments of the European Commission, the Dutch tonnage regime will be restricted as from 1 January 2020. When a vessel belonging to a fleet is put into service after 1 January 2020, at least one vessel ship from this fleet must sail under an EU / EEA flag. A flag requirement for ship managers is also being introduced. There is transitional law for existing cases applying the tonnage regime on 31 December 2019. A cap is also being introduced for ships that do not sail under the EU / EEA flag and are kept in time charter or travel charter. Another restriction is the introduction of a maximum profit for non-transport activities of 50 percent of the annual profit (relevant for, e.g., cruise ships).

DAC 6

On Thursday, 14 November 2019, the House of Representatives also adopted the bill to implement the European DAC6 directive. Under this European directive, EU member states can be obliged to exchange information about certain forms of cross-border advice. The European directive and the new Dutch legislation oblige tax advisers and other intermediaries who advise on taxation, to exchange specific information with the tax authorities. The purpose of the new regulation is to prevent tax avoidance. The exchange of data should enable EU Member States to adjust their tax laws and regulations to combat legal but undesirable cross-border structures. In addition, this legislation may have an effect on behavior, in the sense that taxpayers may abandon structures that fall within the scope of the exchange of information.

Motions and amendments

Various other motions and amendments were submitted during the debates with the House of Representatives of the Finance Bill 2020 and the ATAD2 and DAC6 proposals. Some of these motions and amendments have been adopted, e.g.:

the motion expressing the ambition that the Netherlands is no longer in the Top 5 of transit countries;
the motion monitoring the administrative burden of SMEs in relation to the ATAD2 measures;

Other motions and amendments have been rejected, e.g.

the amendment to cancel the planned reduction of the corporate income tax rate;
the amendment to include an exception for housing associations in the so-called ‘earnings stripping rule’ in the European anti-abuse directive ATAD1;
the amendment to reduce the rate of the real estate transfer tax to 0 percent in case of first-time buyers, but to raise this rate to 6 percent for third and more homes.