EUTA Weekly update - Important additional Dutch tax measures to deal with COVID-19 impact announced
On 24 April 2020, the Dutch government announced additional Dutch tax measures in an attempt to mitigate the potential COVID-19 impact for Dutch businesses. These additional measures will be transposed into legislation and regulations in due time.
The most significant additional measures are:
- Special COVID-19 tax reserve
- Postponement implementation date legislative proposal 'excessive current account debts substantial shareholders'
- Reduction customary wage income substantial shareholders
- Increased 2020 budget for tax free employment costs
Special COVID-19 tax reserve
For Dutch corporate income tax purposes, losses incurred in a respective year can be offset against profits from the preceding year and the six subsequent years. Provisional loss compensation (capped at 80%) with the preceding year is in principle possible when the tax return for the loss year is filed and the final tax assessment for the profit year has been issued (so-called provisional loss compensation). Final loss compensation can take place as soon as the final 2020 tax assessment has been issued. Hence, (provisional) compensation of a 2020 loss with a 2019 profit can take place in 2021, at the earliest.
The Dutch government announced to eliminate this timing mismatch by allowing taxpayers to take into account the expected 2020 loss (insofar this loss relates to COVID-19) in their tax return for 2019 through the creation of a tax reserve with a maximum of the 2019 taxable profit excluding this COVID-19 tax reserve. By requesting a revised provisional 2019 corporate income tax assessment including such tax reserve, taxpayers can, if applicable, obtain a refund for financial year 2019.
Further clarifications on the application of this tax reserve are expected in due course.
Postponement implementation date of the legislative proposal in respect of 'excessive current account debts substantial shareholders'
In 2019, the Dutch government had proposed that as of 2022 a 'substantial shareholder' in a company (generally an interest of at least 5%) would be taxed on a deemed dividend if and to the extent the debts of the shareholder to the company (excluding a loan to finance the primary residence of such shareholder) exceed EUR 500,000. (Deemed) dividends received by a substantial shareholder are taxed in Box II.
In view of the COVID-19 crisis, the Dutch government has decided to postpone the implementation date to 1 January 2023. Consequently, the first reference date for the determination of a deemed profit distribution is postponed from 31 December 2022 to 31 December 2023. Substantial shareholders can, if necessary, anticipate on this expected legislative proposal up to and including 30 December 2023.
Increased 2020 budget for tax free employment costs
Through the so-called ‘tax free allowance’ in the employment costs scheme, employers can provide tax free benefits in kind to employees. As of 1 January 2020, the tax free allowance is 1.7% for the first EUR 400,000 of the sum of wage and salary costs per employer and 1.2% for the excess.
To mitigate the potential impact of COVID-19, the tax free allowance for 2020 for the first EUR 400,000 will be increased to 3%.
Reduction ‘customary wage’ substantial shareholders
Shareholders that hold a substantial interest (generally an interest of at least 5%) in a Dutch company and work for this company are obliged to take into account a customary wage. The amount of customary wage depends on the relevant facts and circumstances, such as the remuneration for similar employment relations of employees not holding a substantial interest.
It was already approved by the Dutch government that the payment of customary wages may be temporarily halted due to the impact of COVID-19. The substantial interest holder may at the end of 2020 determine the customary wage for 2020 retrospectively. In addition, it is now announced that the customary wage may be reduced in proportion to the company's decline in turnover.
Application of the measure will be further clarified in a still to be published decree.
Further guidance on special deferral of tax payments
In a revised Decree dated 22 April 2020, various clarifications and approvals regarding the special deferral of tax payments have been published. The most relevant are the following:
In case of a deferral for more than three months, such deferral will be withdrawn as soon as this is possible given the circumstances at that time (e.g. lockdown measures are mitigated or revoked). The Tax Collector may also require interim repayments during the extended deferral. If the extended deferral will be withdrawn, an appropriate payment arrangement will be offered to the taxpayer.
Furthermore, the conditions of the external expert statement, required for a deferral of tax payment for more than three months if the tax due amounts to EUR 20,000 or more, have been outlined. The external expert will have to state that it is likely that:
- there are real liquidity issues at the moment of the request or shortly thereafter; and
- these liquidity issues are mainly caused by the COVID-19 crisis.
In addition, the request needs to include a liquidity forecast that is plausible according to the external expert.
The Tax Collector has the authority to offset unpaid taxes against any tax refunds he has to repay to the company, if payment problems of the company are known, for instance because of a notification of payment inability. In the Decree, it is stated that for the duration of the deferral period, in principle no offsetting of tax refunds (apart from customs duties) will take place.
Finally, it is explicitly mentioned that no deferrals will be granted if this would be against the interests of the Dutch state (e.g. in case of abuse).
Please see our Q&A for more detailed information on this subject.
Overview of COVID-19 tax emergency measures
See here for an overview of the most important announced COVID-19 tax emergency measures adopted by the European Commission as well as within our home countries Luxembourg, Belgium, Switzerland and the Netherlands.