EBITDA rule: NL raises percentage to 24.5%

18/09/24

This aticle was last update on 18 November 2024.

The earnings stripping (EBITDA) measure is a generic interest deduction limitation, on the basis of which the deduction of interest and related costs (such as foreign exchange results) above a threshold of EUR 1 million (the franchise) is capped at a certain percentage of the adjusted taxable profit, also known as fiscal EBITDA. The Dutch government proposes to increase the percentage of fiscal EBITDA from 20 to 24.5 percent. As a result more interest will be deductible for many taxpayers. Another measure that was also proposed on Budget Day, that would reduce the deductibility of interest specifically for real estate companies, has been cancelled.

What does this mean for your company?

If your company (or fiscal unity for corporate income tax purposes) has an interest balance of more than EUR 1 million, a higher amount of interest may be deductible from the taxable profit from 2025. However, this also depends on the fiscal EBITDA of your company.

Originally, the 2025 Tax Plan contained two adjustments to the earnings stripping measure (Section 15b CITA 1969). This provision stems from the EU Anti-Tax Avoidance Directive 1 (ATAD1). This Directive gives EU Member States a certain amount of leeway to make their own choices.

1. Expansion of interest deduction due to increase in the percentage of earnings stripping measure

It had already been announced in the Outline Agreement that the percentage for the application of the earnings stripping measure would be increased from 20% to 25% of the fiscal EBITDA. The coalition partners propose to increase the percentage from 20% to 25%. This 25% would be the European average. However, according to PwC's own research, there are only two EU countries that have set the interest deduction limitation lower than the 30% allowed under ATAD I. These are Finland with 25%, and the Netherlands with 20% since 2022. When the earnings stripping measure was introduced in 2019, the percentage was still 30%.

This increase in the percentage from 20% to 25% was indeed part of the 2025 Tax Plan. However, the Chamber has adopted an amendment which reduced the increase from 25% to 24.5%.

The interest balance up to 1 million euros, the franchise, is not limited for deduction (at least not based on this interest deduction limitation). In net terms, this means that certain companies will have more room to deduct interest on loans. The earnings stripping measure is a generic interest deduction limitation. In addition to this provision, the CITA 1969 also contains a number of specific interest deduction limitations. These are used in transactions or interest flows defined by law. Interest that is not deductible under the specific interest deduction restrictions cannot still be deducted under the application of the franchise of EUR 1 million, but is completely excluded from deduction.

2. Franchise for all real estate companies remains in place

In the Tax Plan 2025 the franchise of 1 million euros for the application of the earnings stripping measure was abolished for companies whose assets consist mainly of real estate leased to third parties (real estate companies) for at least half of the year. These taxpayers would only be eligible to the 25% rule (now: 24.5% rule) and therefore no longer be entitled to the franchise. This rule was intended to prevent a real estate company from being split up so that the franchise can be used several times within the group (anti-fragmentation).

However, as mentioned, the Chamber has taken this proposed measure out of the Tax Plan 2025 by amendment. As a result, the original (non-fragmented) franchise remains applicable. As mentioned, the percentage of the generic interest deduction limitation will not be increased to 25%, but to 24.5% for reasons of Budget neutrallity.