BDO Corporate Tax News

Netherlands - Tax plans announced for the 2025 budget

On 16 April 2024, the Netherlands’ Undersecretary of Finance released the provisional tax plan for 2025, which sets out the government’s intentions for the budget that will be presented on 17 December 2024. The early disclosure of the tax proposals—several of which would impact multinationals doing business in the country—aims to improve the quality of the legislative process. Shortly before the provisional tax plan was announced, on 5 April, the Undersecretary released a memo outlining several other budgetary measures for consideration. This article looks at the most important proposals in both documents that would affect entities carrying out cross-border activities in the Netherlands.

The provisional tax plan includes the following proposals:
  • Codification of the GAAR principle in ATAD 1: The first EU Anti-Tax Avoidance Directive or ATAD 1 required EU member states to include a general anti-abuse rule (GAAR) in their tax laws. To date, the Dutch tax authorities have taken the position that the general abuse of law principle (i.e., “fraus legis” in the Netherlands) as developed in case law sufficiently covered this. The European Commission has now requested that the GAAR be included in Dutch tax law. The Undersecretary of Finance emphasises in the provisional tax plan that no changes are intended to be made to the abuse of law principle as developed in case law.
  • Earnings stripping rule: Under the Dutch earnings stripping rule, EUR 1 million of net interest expense may be deducted irrespective of the level of tax EBITDA. This has given rise to situations where groups in the real estate sector are splitting up activities in various tax-paying entities in order to maximise the use of this threshold. It will be proposed in the 2025 budget that the EUR 1 million threshold would not apply to real estate entities that lease real property to third parties, meaning that such entities would only be able to deduct interest that does not exceed 20% of EBITDA.
  • Intermediary finance and royalty companies: Dutch tax law contains specific rules on the minimum equity that intermediary financing and royalty companies must have available to cover risks arising from their business activities. Several advisory committees have recommended that this rule be revised to a more “open norm” (i.e., one without definite boundaries or conditions). The Undersecretary of Finance expects that as a result of such a change, companies could decide to cease activities in the Netherlands and move them elsewhere, which would lead to reduction of the budgetary means available to the government. As the current government has a “demissionary” status (effectively a caretaker government), the Undersecretary of Finance stated that the new cabinet will need to decide on this matter and, therefore, has not made any specific proposals.
  • Interaction between the loss carry forward rules and the debt waiver exemption: The loss carry forward rules were revised as from 1 January 2022 to limit the carry forward to 50% where profits exceed EUR 1 million. This resulted in an unintended interaction with the rules governing business debt waivers: the loss compensation rules can lead to taxable income in cases where there is a business debt waiver, which could have the effect that the taxpayer in distress goes bankrupt. It is proposed to repair this unintended interaction.
  • Subject-to-tax rules and Pillar Two minimum tax: The Corporate Income Tax Law contains various rules that refer to a minimum level of effective corporate tax. A proposal will be included in the 2025 budget to update the definition of the minimum level of tax as a result of the introduction of the Pillar Two minimum taxation rules.
  • Liquidation loss regime: The rules preventing the conversion of a non-deductible loss on a sale or an operating loss into a liquidation loss would be clarified.
  • Cooperating group and conditional withholding tax: The conditional withholding tax on qualifying dividend, interest and royalty payments depends in part on whether the payor entity and the recipient entity are related parties. The definition of related parties for this purpose includes the concept of a cooperating group, as defined in article 10(6) of the Corporate Income Tax Law. It has become apparent that the concept of a cooperating group for the application of the conditional withholding tax is open to differences of interpretation, so it is proposed to clarify this and introduce a definition of related party specifically for the conditional withholding tax.
  • Simplification rules for mergers between sister companies: The rules for legal mergers would be amended to allow for more simplified mergers between sister companies.
Other budgetary measures
The 5 April memo lists several other budgetary measures for consideration with a view to covering any shortfall in the collection of taxes resulting from the decision-making process for the 2024 budget, including the following:
  • Corporate income tax rates: One suggestion targets the corporate income tax rates: increase the rate of the first bracket from 19% to 20.5%, lower the range of the first bracket from EUR 200,000 to EUR 75,000 or increase the main rate from 25.8% to 26.6%.
  • 30% ruling: The memo contains comments about the “30% ruling,” a tax benefit granted to qualified individuals moving to the Netherlands for specific employment. Such individuals previously were entitled to a tax-free allowance of 30% of the gross salary for several years, but this has been further contracted as from 1 January 2024. Now the benefit is available only for the first 20 months, dropping to 20% for the following 20 months and then to 10% for the final 20-month period. These changes have been subject to various criticisms due to the expected negative impact on the investment climate in the Netherlands. The memo states that the periodic review of the 30% ruling will be accelerated, with a new report to be released in June to allow the government to come up with proposals that are less detrimental to investment.
As noted above, the Netherlands currently has a caretaker government and negotiations are ongoing for a new cabinet following the 2023 elections. It remains to be seen what will happen when a new cabinet is finally chosen and what the impact will be on the 2025 budget.

Frederik Boulogne
Tom Bijkerk
BDO in Netherlands
Please accept statistics-cookies to see the content.