Amendments to the Dutch Minimum Tax Act 2024

1. 15% minimum level of taxation for large enterprises (Pillar Two)

As of year-end 2023, a large number of countries have been working on introducing a business income taxation system (annual turnover of €750 million or more) levying tax at a minimum effective rate of 15% per jurisdiction (Pillar Two). The calculation of the effective tax rate is based on the financial reporting standard used in the preparation of the consolidated financial statements of the ultimate parent entity. In recent years, around 140 countries have reached political agreement on this within the Inclusive Framework on Base Erosion and Profit Shifting (IF), organised by the Organisation for Economic Co-operation and Development (OECD).

If the effective tax rate in a jurisdiction where the company operates with one or more group entities falls below the minimum, an additional top-up tax will be levied to ensure the politically agreed upon minimum rate of 15%. The top-up tax is levied on local group entities on the basis of internationally agreed mechanisms. Top-up taxation of low-taxed domestic group entities may primarily be based on the so-called qualifying domestic top-up tax. Otherwise, top-up taxation on low-taxed foreign subsidiaries takes place according to the so-called income inclusion rule. As a safety net, an additional tax applies to low-taxed foreign parent entities in the form of the so-called undertaxed profits rule (generally as of year-end 2024).

2. Draft Bill Amending the Dutch Minimum Tax Act 2024

Dutch Minimum Tax Act 2024

The Netherlands has introduced Pillar Two with the Minimum Tax Act 2024 (MTA 2024). This legislative act has accordingly transposed the EU Pillar Two Directive of 14 December 2022. The Dutch legislation and the EU Pillar Two Directive are almost entirely based on the model rules published by the OECD on 20 December 2021. The OECD published a commentary on the model rules on 14 March 2022. Countries can use these when implementing and interpreting the new rules in their national legislation. In 2023 and 2024, the OECD published several additional sets of administrative guidelines. 

With the bill, the Dutch legislator aims to ensure that the alignments with the model rules, comments and guidance of the Inclusive Framework are carefully safeguarded. This is to promote consistent rule application and to prevent discrepancies with other countries. Where the guidelines do not merely clarify, the government considers it important to incorporate these in the legislation. The government points out that the EU Pillar Two Directive requires that OECD publications will be used as a source of interpretation and explanation for purposes of transposing the rules into the respective EU Member State domestic legislation. Some of the guidance from December 2023 and June 2024 will still be assessed. In addition, a number of technical changes are proposed, often in response to technical questions that have arisen in practice. 

Substance-Based Income Exclusion

The Pillar Two rules provide for a top-up tax-free allowance, the so-called Substance-Based Income Exclusion. This amount is deducted from the basis on which the top-up tax is calculated. The exclusion is calculated based on employee expenses and tangible assets in a jurisdiction. The July 2023 guidance provides additional rules on the calculation of this base. The draft legislative bill brings the implementing legislation in line with these guidelines.

Country-by-Country Reporting Safe Harbor

The Pillar Two rules provide for a so-called transitional Country-by-Country Reporting (CbCR) Safe Harbour. On the basis of this temporary regime, in-scope enterprises can show that they pay sufficient tax on the basis of their CbCR data and qualifying financial statements data. The top-up tax in other countries will then be set to nil. The July 2023 guidance provides additional rules on the application of this transitional regime. In this way, companies that do not prepare a qualifying country-by-country report are also given the opportunity to apply the transitional regime. Furthermore, the guidance introduces anti-arbitrage rules that prevent the use of mismatches between tax rules and financial reporting regulations. The draft legislative bill brings the implementing legislation into line with these guidelines. It should be noted that the anti-arbitrage rules referred to above are not introduced retroactively. The anti-arbitrage rules will enter into force on 31 December 2024 and will apply for the first time to reporting years beginning on or after this date.

Memorandum of Amendment

The Memorandum of Amendment introduces a number of editorial changes and incorporates three topics in the legislation: (i) a refreshment rule for the qualified domestic minimum top-up tax; (ii) a simplified reporting of top-up tax per state, and; (iii) a basis for a delegated act to impose conditions on the GloBE Information Return (GIR).

Re (i). The refreshment rule applies to the calculation of the qualified domestic minimum top-up tax in the context of the Pillar Two transition rules. The transition rules determine, among other things, how deferred tax from the pre-Pillar Two period must be treated from the start of the transition year. The transition year is the year in which Pillar Two applies for the first time to the relevant in-scope multinationals involved. The refreshment rule aims to prevent mismatches from arising if other countries implement Pillar Two later in time than the Netherlands has. The measure respects when countries join later and effectively extends the pre-Pillar Two period to that later date.

Re (ii). A simplified reporting of top-up tax per state is introduced. Relevant in-scope multinationals can choose to report top-up tax per state instead of per individual group entity for fiscal years starting before 1 January 2029 and ending before 1 July 2030. The simplified reporting applies if in that state: (i) no top-up tax is due, or; (ii) there is no allocation of top-up tax per group entity. For countries where the conditions are not met, reporting per group entity remains the norm.

Re (iii). The basis for a delegated act creates the possibility to lay down further rules by ministerial decree on form and content of the GIR, as well as the manner in which it needs to be submitted and the data and information that is required to be provided. The purpose of this is to make the format developed by the OECD for that purpose mandatory in the Netherlands.