On Budget Day, September 15, 2009, the Cabinet presented the 2010 Budget and the Tax Plan 2010 to the Lower House. The Tax Plan 2010 comprises the following measures:

• the Tax Plan itself;
• the Other Tax Measures Act of 2010;
• the Tax Simplification Act of 2010;
• the Uniform Definition of Salary Act;
• the Tax Refinement Act of 2010; and
• the Act Abolishing Flight Tax.

This year’s proposed tax measures are designed to make doing business in the Netherlands simpler and more appealing. Many of the proposed measures will enter into effect on January 1, 2010. The highlights of the Tax Plan are described below.

Corporate income tax

The Tax Plan proposes relaxing the current participation exemption rules for low-taxed passive-investment participations. This relaxation is intended to simplify, and offer more certainty regarding, the application of these rules. The proposals are very similar to those made in the consultation memorandum dated June 15, 2009, with the comments on the latter having been taken into account. The proposed amendments mainly concern the introduction of an intention test, a liberalization of the assets test, and a more practical application of the subject-to-tax requirement, wherein the latter two factors will function as safe harbors. The bill does not propose amending the current tax treatment of hybrid loans. Compartmentalization is the premise for taxability and timing issues.

The Tax Plan proposes broadening the Patents Box that was implemented on January 1, 2007, into an “Innovations Box” in order to further promote innovative activities. The effective rate would be lowered from 10% to 5%, and the current cap would be abolished. In addition, as announced earlier, the losses incurred on innovative activities would be deductible at the normal (high) rate of 25.5%.

The bill contains a temporary measure that would offer corporate income taxpayers the opportunity to extend the current loss carry-back term from one year to three years. In exchange, the current term for carrying losses forward would be shortened from nine years to six. A maximum of EUR 10,000,000 could be set off against each of the extra profitable years. The measure would apply only to the 2009 and 2010 tax years.

Under certain conditions, accelerated amortization/depreciation can be claimed in 2010 and 2011 (up to a maximum of 50% per year) with respect to certain investments made in 2010. This is a one-year extension of the crisis measure that entered into effect earlier with regard to 2009.

In order to further promote investments in sustainable and environmentally friendly business assets, the package permanently increases the budget available for the energy- and environmental-investment deductions. In addition, the small-scale investment deduction will be stepped up.

One noteworthy feature of the package is that, despite earlier consultations on the issue, it does not as yet contain any measures regarding interest. There is no proposal for implementing an Interest Box, and there are no proposals for restricting interest deductions. It therefore seems unlikely that the legislation will change in that regard before January 1, 2010.

Personal income tax

Promotion of enterprise

• The SME profit exemption will apply without being required to meet the "hours threshold."
• The SME profit exemption will increase from 10.5% to 12%.
• For enterprises that do not qualify as start-ups, the self-employment deduction will be limited to profit income, but the right to claim this exemption will not be lost in the event of insufficient profit (the maximum carry-forward term is nine years).

Deferral rules in the case of gifts or bequests of substantial shareholdings
Under current personal income tax law, the deferral rules can be invoked in the event of an inheritance of a substantial shareholding (more than 5% of the shares in a company). With effect from 2010, this option will also be available for substantial shareholdings that are gifted, but only to the extent that the company whose shares are being transferred operates a substantive enterprise. This requirement will also apply to the deferral rules regarding the inheritance of a substantial shareholding, which means that the incentive will no longer apply to investment assets. In principle, tax will have to be paid in such situations.

Improvements to the personal income tax regime for making assets available
A director-major shareholder (“DMS”) who makes assets available to his BV is subject to a progressive tax on that activity in Box 1. He is taxed not only on the income, but also, upon ceasing to make the assets available, on any capital gain. These rules will be liberalized as follows:

• Premises that are made available can - only in 2010 - be transferred to that BV free of personal income tax (by transferring the book value) and real estate transfer tax.
• The party making the assets available will benefit from an incentive that is comparable to the SME profit exemption.
• The party making the assets available will be entitled to claim the reinvestment reserve and the cost-equalization reserve facilities.
• The payment facility will be relaxed with regard to the personal income tax facility for making assets available.

Personal deduction
In the event an annuity is gifted to a public welfare institution, a deduction item can be claimed in Box 1 in the amount of the annuity term. Child and spousal support are also deductible in Box 1. In addition, in both cases, the cash value of the annuity obligation is deducted from the capital yield tax base reported in Box 3. The latter deduction will no longer be available after December 30, 2009.

Insured bank saving will be expanded
Since 2008, tax incentives have been applicable to special blocked bank products for annuities and debts associated with owner-occupied residences. As from 2010, that same incentive can apply to rights granted in connection with a “golden handshake,” but not to disability insurances and annuities for disabled children or grandchildren who have reached the age of majority. A blocked bank balance intended to cover funeral costs will qualify for the exemption in Box 3.

Inheritance tax debts
From now on, inheritance tax payables and receivables will be eligible for inclusion in Box 3.

Payroll tax and social security contributions

Simplification of the definition of “salary”
A single definition of “salary” will apply to payroll tax, social security contributions, employee insurance contributions, and the income-linked contribution under the Healthcare Insurance Act. This will not only substantially reduce the relevant administrative burden, but it will also significantly simplify salary statements. This is not expected to be implemented until January 1, 2011 or 2012. In addition, several rules will be abolished by the new rules on work-related costs. For example, currently, there are 29 categories of allowances and reimbursements that an employer can provide free of tax. Many of these will be replaced by an exemption of 1.5% of the salary for tax purposes. A final levy may still be imposed in addition to that amount. For a number of costs, such as travel, study, extraterritorial, and moving expenses relating to the relocation of a business, the fixed rate of 1.5% will not apply; under certain circumstances, a higher tax-free allowance can be granted. The rules on work-related costs are not expected to enter into effect until January 1, 2011.

Relaxation of the notional salary rules
The notional salary rules – the usual market salary for similar work – are the premise used in determining the salary for tax purposes of a DMS who works for his BV. The notional salary rules will no longer apply if the notional salary is no more than EUR 5,000 per year. In these cases, no payroll need be set up unless the BV actually pays the salary.

Other measures
The current compulsory income-related contribution under the Healthcare Insurance Act will be abolished. Instead, employers will be subject to a levy under that Act, with the amount linked to the contribution limit for employee insurances. The complicated refund of overpaid contributions under the Healthcare Insurance Act on behalf of those with multiple employers will be eliminated. In the future, the employees’ portion of unemployment insurance contributions will no longer appear in the payroll records. The exempt amount for unemployment insurance will be abolished. Separate data for unemployment insurance contributions will no longer have to be kept. In addition, a distinction will no longer be made between payroll tax/social security contributions and employee insurance contributions on the addition to income for the private use of a company car, and the contributions for, and taking of, special leave under the special leave rules.

Dividend withholding tax

The legal-form and subject-to-tax requirements for applying the withholding exemption to profit distributions to EU-resident parent companies will be abolished. The withholding exemption will not apply, however, to distributions to institutions that are comparable to the Dutch fiscal investment institution or tax-exempt investment institution.

VAT

The reduced VAT rate of 6% will apply to a number of new categories.

• Painting and plastering work. The VAT rate was temporarily lowered to 6% for painting and plastering work. This reduction will now become permanent. In addition, one of the conditions for the rules will be liberalized: the house need only be 2 years or older (previously, it was 15 years or older). The new rule enters into effect on September 15, 2009, and dovetails with the measure implemented on July 1, 2009, regarding the reduced VAT rate for home-insulation work.
• Electronic materials. Until now, the reduced VAT rate applied only to books in hard copy. Because more and more reading material is being published in electronic form, the reduced VAT rate of 6% will also apply to electronic educational materials. These might be educational CD-ROMs, courses on DVD, or course material on other physical data carriers. From now on, the reduced VAT rate of 6% will also apply to audiobooks.
• Residential cleaning services. From now on, the reduced VAT rate of 6% will also apply to residential cleaning services.

Two existing VAT exemptions for professional education and youth services will be amended.

The “integration levy” on goods manufactured by one’s own company will be amended to be consistent with the European VAT Directive. This amendment will be coupled with a reasonable transitional term.

Procedural law amendments

The Cabinet has proposed a number of procedural law amendments intended to, on the one hand, simplify the rules and lighten the administrative burden, and, on the other hand, to result in stricter compliance.

Simplifications

• The commencement date for calculating interest on personal and corporate income tax due (or to be refunded) will be changed from July 1 of the tax year in question to January 1 of the subsequent tax year.
• If interest on tax due (or to be refunded), revision interest, a payment discount, or joint income is reported in a tax return, the objection and appeal regarding the assessment will also be considered as having been filed with regard to those amounts (and vice versa).
• A provisional personal income tax return can be revised without having to file an official objection. The term for filing an objection to a revision request that has been filed with regard to a provisional assessment will be extended until the date the final assessment is imposed.
• The decision that follows a request for an ex officio reduction of personal income tax will be open to objection and appeal.
• The term within which the tax inspector must issue his decision on a VAT refund request will conform with that in the General Administrative Law Act (in principle, a maximum of eight weeks).

Stricter compliance

• The statutory conditions under which the tax inspector may impose additional assessments or revise a decision will be significantly liberalized. From now on, the tax inspector can impose an additional assessment in cases in which a tax assessment contains an error of which a taxpayer could reasonably be expected to have been aware. How the error came about is irrelevant.
• VAT refunds that were erroneously granted pursuant to a taxpayer’s or withholding agent’s request will also be subject to the imposition of additional assessments.
• Late payment interest on inheritance tax owed will begin at eight months from the death of the deceased. No late payment interest will be imposed with respect to gift tax.
• The default penalty for failing to file a personal income, corporate income, gift, or inheritance tax return, or filing a late or incomplete return for those taxes, will be quadrupled.
• From now on, a default penalty will also be imposed in the event that personal income, corporate income, gift, or inheritance tax is not paid, if it is paid late, or if it is not paid in full.
• Failing to meet a substantial number of tax obligations, including filing a timely request for a tax return form or granting access to business premises, will also result in the imposition of a default penalty. Currently, failing to satisfy those obligations is still a criminal offense.
• From now on, the maximum default penalties will be indexed once every five years. For the next five years, these penalties will be fixed at a maximum of EUR 4,920.

Directors’ liability
In the area of directors’ liability, the notification of the inability to pay can only be made in writing, either on hard copy or electronically through the Dutch Revenue’s Web site. This change will enter into effect on a date to be determined later.

Vehicles

With effect from January 1, 2011, or January 1, 2012, the addition to income for the private use of a company car will be considered salary for employee insurance contributions purposes.

For the next two years, no addition to income for private use will be made with regard to electric company cars. The addition will be 7% for the three years thereafter. In addition, the BPM (private motor vehicle and motorcycle tax) exemption for electric cars will be extended until 2018, when the gradual abolishment of BPM is expected to be completed. This will be linked to the implementation of a kilometer-based tax.

The road tax rate for extremely fuel-efficient cars will be reduced to zero. “Extremely fuel-efficient cars” are diesel-powered passenger cars with CO2 emissions of 95 grams or less per kilometer and gas-powered passenger cars with CO2 emissions of 110 grams or less per kilometer. In addition, extremely fuel-efficient cars and electric cars will be considered as business assets eligible for the small-scale investment deduction.

From 2009 through 2013, BPM will be gradually converted from a tax based on a vehicle’s list price to a tax based on its CO2 emissions. The bonus/penalty incentive based on the energy-efficiency category and CO2 surcharge will be abolished with effect from 2010.

The BPM discount for fuel-efficient cars will be raised from EUR 500 to EUR 700 in order to prevent the gap between fuel-efficient cars and extremely fuel-efficient cars from becoming too wide. “Fuel-efficient cars” are gas-powered cars whose CO2 emissions are between 110 and 120 grams per kilometer and diesel-powered cars whose CO2 emissions are between 95 and 104 grams per kilometer.

Real estate transfer tax

The real estate transfer tax exemption for acquisitions of historical buildings will be abolished. Very recently, case law expanded this decision to private individuals and non-designated legal entities. The exemption will be replaced by a subsidy granted through the Ministry of Education, Culture and Science.