Netherlands: changes tax loss compensation rules and proposal job-related investment tax credit
On 5 October 2020, the Dutch Ministry of Finance submitted proposals to parliament as already announced on Dutch Budget Day 2020:
- As of 1 January 2022, for corporate taxpayers the carry forward of losses will be unlimited in time. At the same time, carry forward will be limited to 50% of the taxable profits to the extent they exceed EUR 1 million. The proposal does not include grandfathering rules meaning all losses incurred prior to 1 January 2022 and still available in 2022 would become subject to these new rules.
- Introduction of a job-related investment incentive in the form of a payroll tax remittance reduction.
Proposed changes to tax loss compensation rules
Introduction of an annual limitation and unlimited carry forward
Following the report of the Dutch Advisory Committee on taxation of MNEs (see our Tax Flash dated 16 April 2020), the Dutch government has proposed to limit the annual loss compensation of corporate taxpayers to 50% of their taxable profits to the extent these profits exceed EUR 1 million. This applies to both carry back and carry forward of tax losses.
Further, losses realised as of 2022 will remain available to be offset against future taxable profits for an indefinite period. This will also apply to losses realised prior to 2022, provided that these losses are still available for carry forward in 2022 pursuant to the current loss compensation rules.
Applicable as of 1 January 2022 without grandfathering rules
If adopted, the new loss compensation rules will be applicable as of 1 January 2022. The government does not foresee in grandfathering rules. As a result, losses incurred prior to 1 January 2022 will become subject to these new rules if they will be available for offset against taxable profits incurred after that date. In individual cases it could therefore be considered to utilize available carry forward losses prior to 2022, as of which year the 50% limitation rule will apply.
Impact financial statements
The changes to the annual loss compensation rules form part of the 2021 Budget and are expected to be adopted before the end of 2020. Hence, it should be established already whether there is an impact of these new measures on the financial statements of corporate taxpayers with carry forward losses, as a result of which the deferred tax asset may need to be revaluated.
Temporary job-related investment incentive
Payroll tax credit
In order to retain and to create more jobs, a job-related investment incentive will be introduced in the form of a tax credit. This tax credit can be set off against the payment of payroll tax (i.e. wage tax and national insurance contributions). As a result, this subsidy can also be effectuated if a company does not have taxable profits. It can only be claimed if sufficient wage tax and social security contributions are due.
The investment subsidy is only available to companies who are subject to both Dutch payroll tax and Dutch corporate income tax. In case of a fiscal unity for Dutch corporate income tax purposes, it is not necessary for the company subject to Dutch payroll tax to also be the investment company.
The temporary subsidy is aimed at new business assets of which the investment commitment is entered into on or after 1 October 2020. The investment must be paid in full in 2021 or 2022 and must be taken into use no later than 6 months after the last payment has been made. The investment incentive can coincide with other current investment incentives. Submissions are possible as from 1 September 2021. Certain business assets are excluded from the scope of the temporary investment subsidy.
Tax credit amount
Business eligible for the investment incentive can deduct 3% of their investments up to EUR 5 million per calendar year from their payroll tax and 2.44% of their investments in the excess of this amount. The minimum investment for which the tax credit can be claimed is EUR 20,000, whereby the investment per business asset must be at least EUR 1,500.
We will keep you updated on further developments. Should you have queries, please contact your trusted adviser at Loyens & Loeff.
Michiel SchulPartner Tax adviser
Michiel Schul is a partner in Loyens & Loeff’s International Tax Services practice group and a member of the Energy Team and the US Region Team. From 2011 to 2013 he worked in Loyens & Loeff’s New York office.T: +31 20 578 53 38 M: +31 6 51 88 64 01 E: [email protected]