Second bill of amendment to the Tax Plan 2022: increase headline corporate income tax rate and tightening of the earnings stripping rules
On 15 October 2021, a second bill of amendment to the Tax Plan 2022 was released. This new bill includes (i) the tightening of the earnings stripping rules by decreasing the maximum percentage of deductible interest from 30% to 20% and (ii) the increase of the headline corporate income tax rate from 25% to 25.8%. Both changes have been announced earlier and will, if adopted, apply as of 1 January 2022.
On 21 September 2021, the Dutch Ministry of Finance submitted the 2022 Dutch Budget to parliament. The most relevant proposals for corporate taxpayers were the elimination of double non-taxation through transfer pricing mismatches and the tax liability rules for reverse hybrid entities (see our Tax Flash of 21 September 2021).
On 5 October 2021, the Dutch Ministry of Finance already submitted a first bill of amendment to parliament containing (i) a reparation of a Dutch Supreme Court case regarding utilisation of ring-fenced holding losses within a Dutch tax consolidated group and (ii) two specific changes to the Withholding Tax Act 2021. These amendments to the Tax Plan 2022 were already announced on Budget Day 2021 and also described in our Website Post of 8 October 2021.
The second bill of amendment of 15 October 2021 follows political agreement reached during debates around Budget Day 2022 (see our Website Post of 24 September 2021) and contains two relevant measures for corporate taxpayers:
Increase headline corporate income tax rate and thus the conditional withholding tax rate
It is proposed to increase the headline corporate income tax rate from 25% to 25.8%. Please note that according to the adopted Tax Plan 2021 last year, the SME bracket will be increased from Euro 245,000 to Euro 395,000 as of 1 January 2022. The applicable tax rates will thus be 15% for profits up to Euro 395,000 (SME-rate) and 25.8% on the higher amount.
It should be noted that the main corporate income tax rate is also decisive for the tax rate to be applied for the conditional withholding tax on interest and royalties. As a result, the applicable 2022 rate for the conditional withholding tax will, if the proposed increase will be adopted, also change to 25.8%. We refer to Quoted for more information about this conditional withholding tax.
Tightening of the earnings stripping rules
The Netherlands introduced earnings stripping rules per 1 January 2019 based on the European Anti-Tax Avoidance Directive. These limitation rules cover both third party and related party interest. The deduction of net interest expenses is currently limited to the highest of (i) 30% of the earnings before interest, taxes, depreciation and amortization (EBITDA) and (ii) a threshold of Euro 1 million.
Based on this second bill of amendment the 30% will be lowered to 20% entailing a further limitation of the deductibility of interest for companies. In this respect we also refer to a recent study published by the Dutch Ministry of Finance on a more equal tax treatment of debt and equity (see our Website post of 15 September 2021). In this study it is concluded that a lowering of the debt-equity bias is needed for various reasons but should preferable be achieved within an international context, for example through the so-called DEBRA initiative of the European Commission.
We will keep you updated on further developments. Please do not hesitate to contact us in case of queries.
Arco BobeldijkPartner Tax adviser
Arco C.P. Bobeldijk, tax expert, is co-chair of Loyens & Loeff’s Corporate Tax Services practice and a member of the Corporate Restructuring & Insolvency Team, the Public Enterprises Team and the contact person for Loyens & Loeff’s Tax Expert Team.T: +31 20 578 54 14 E: [email protected]