On Budget Day, September 21, 2010, the Cabinet presented the 2011 Budget and the 2011 Tax Plan to the Lower House. The 2011 Tax Plan comprises the following proposed legislation:
· the Tax Plan itself;
· the Other Tax Measures Act 2011.
This year’s proposed tax measures focus on encouraging business and innovation, stimulating the housing market, stimulating the use of extremely efficient cars, and combating fraud and tax evasion. Many of the proposed measures will take effect on January 1, 2011. The main features of the Tax Plan are set out below.
Corporate income tax
Rate decrease
The corporate income tax rate on the taxable amount exceeding EUR 200,000 (the top rate) will be lowered from 25.5% to 25%. For non-calendar financial years, this rate decrease only applies in full to those financial years starting on or after January 1, 2011. The rate on the first EUR 200,000 of the taxable amount will remain 20%. This was already the case, based on a temporary measure, and is now being formalized.
Innovation box
The scope of the innovation box is somewhat broadened, mainly to cater for situations in which the period between an application for a patent and the granting of the patent is unusually long. Subject to certain conditions, profits that are attributable to the relevant patented asset may, during the period from the year in which the patent was applied for through to the year preceding the year in which the patent was granted, also be brought within the scope of the innovation box. A concession is provided for situations existing at the time the bill entered into force.
Trade in loss-making companies and profit-making companies
The existing anti-abuse measure aimed at the trade in so-called loss-making companies and profit-making companies will be somewhat tightened. In principle, the existing measure applies – save for certain exceptions – where there is a change in shareholders of 30% or more. The Supreme Court has confirmed that the rules as they are currently structured only affect the loss set-off position at the end of the year preceding the year in which such major change in the shareholders takes place, but do not affect the results of the year in which the tainted change in the shareholders takes place. As of January 1, 2011, this will change under the new proposals.
Extended crisis measure: free depreciation
As a temporary measure in response to the economic crisis, certain investments made in 2009 and 2010 can be freely depreciated, up to a maximum of 50% in the year in which the obligation was incurred or in which the development costs were made. The relevant business assets must be in use before January 1, 2012, or January 1, 2013, respectively. This measure has been extended for one year and will be applicable to investments made in 2011. It is likely that this will be subject to the condition that the business assets in question are in use before January 1, 2014. Items such as buildings, intangible assets, and business assets made available to third parties other than on a temporary basis are ineligible for this facility.
Extended crisis measure: liberalization of loss carry-back
Another temporary measure resulting from the economic crisis allows corporate income taxpayers, when filing an income tax return, to extend the current one year loss carry-back term to three years, for losses incurred in 2009(/2010) and 2010(2011). This measure is extended for one year and will therefore also apply for losses incurred in the 2011(/2012) financial year. Those taxpayers opting for the extension of the loss carry-back term, will lose three years from the current nine year carry-forward term, thereby shortening this term to six years. Losses incurred in 2011(/2012) that are carried back under this measure are capped at EUR 10,000,000 for each additional previous year.
Tax period for non-resident taxpayers
It has been proposed to bring the tax period for non-resident taxpayers in all cases into line with the tax period for resident taxpayers.
Real estate transfer tax
Closing down real estate entity planning structures
Real estate transfer tax is due on the acquisition of real estate located in the Netherlands, or the acquisition of limited rights over, and the beneficial ownership to such real estate. In order to prevent real estate transfer tax being avoided through the interposition of a legal person, the acquisition of shares in a “real estate entity” (“REE”) is also taxed – under certain conditions – under current law. A REE exists if 70% or more of the assets of an entity consist of real estate located in the Netherlands.
This condition will be tightened up in the sense that the 70% criterion will be replaced by a 50% criterion and, from now on, real estate located abroad will also be included (assets test). In addition, the requirement that the share of real estate located in the Netherlands should comprise at least 30% of the assets will also be included (purpose test). However, the tax base will remain limited to real estate located in the Netherlands.
Temporary extension of the house resale exemption
For the purposes of the real estate transfer tax, the period of six months for the resale of real estate, as it applies to houses, will temporarily be extended to twelve months. If, in 2011, a house is acquired, a subsequent acquisition of this house within twelve months will only be subject to real estate transfer tax to the extent that an increase in value has taken place.
Payroll tax and social security contributions
Further liberalization of R&D incentive
The temporary liberalization of the Promotion of Research and Development Act (“PDRA”), that was introduced in 2009 and 2010 in response to the economic crisis, has been extended for one year. The PDRA is a tax incentive measure under which the Dutch government rebates part of a company’s R&D-related payroll costs by reducing the amount of payroll tax and social security contributions that must be paid on the salary attributable to R&D work. For 2011, a deduction of 46% (currently 50%) applies for the first EUR 220,000 (also the current threshold) of R&D-related payroll costs, with a 16% (currently 18%) deduction for R&D-payroll costs above EUR 220,000. The maximum rebate per taxpayer will be EUR 11,000,000 (currently EUR 14,000,000). For 2012 a deduction of 45% will apply to R&D costs up to EUR 150,000, and 14% for any excess. The maximum rebate per taxpayer in 2012 will be EUR 8,500,000. The 2012 changes are intended to be permanent.
Other measures
The new work-related costs rules will be extended as regards work-related clothing with a business logo, professional literature and the costs of professional registration.
Dividend withholding tax
E-dividend return
A dividend statement must be issued when dividends are distributed. The applicable rules for dividend statements have been relaxed. Following on from an earlier concessionary policy decision, the Dividend Withholding Tax Act of 1965 will be amended so as to allow for a dividend statement to be issued in electronic form (e-dividend statement). An e-dividend statement can be electronically transmitted or made available through a website. Furthermore, a dividend statement does not have to be provided in the following situations:
· the party entitled to the dividend has a substantial interest in the company distributing the dividend;
· dividend withholding tax is not deducted because an exemption is provided for by the Dividend Withholding tax Act 1965, or under a Dutch tax treaty.
VAT
Quarterly VAT return extended by one year
The previously extended option to file a quarterly instead of a monthly VAT return will become permanent. This will improve liquidity for businesses that have to pay VAT.
Temporary lowering of VAT rate for labor costs for home renovation
The VAT rate of 19% on labor costs for renovation and repair to homes (including rental homes) older than two years from the date of first use, will be lowered to 6%. In anticipation of forthcoming legislation, a policy decree has already approved the lowering of the VAT rate for the abovementioned services, so that the new lower rate can apply as of October 1, 2010. This measure will expire on July 1, 2011.
Personal income tax
Extension of the maximum period for mortgage interest relief on empty private homes
The maximum period for continuing to deduct mortgage interest for tax purposes when selling a former owner-occupied home has been extended for one year. Interest can be deducted for an owner-occupied home that has been vacated either in the current calendar year or up to three years previously, and then put up for sale. There is also a one year extension for mortgage interest tax relief for currently empty homes that will be occupied in the future or are currently under construction. For these two categories of owner-occupied homes, interest can be deducted if they are to be used as an owner-occupied home in the current calendar year or one of the following three years. The extension of these periods will be applicable in 2011 and 2012, and the former periods will apply as of January 1, 2013.
Re-applicability of mortgage interest tax relief after temporary rental
As soon as a former owner-occupied home that has been offered for sale is temporarily rented out, the residence and any related loan will no longer fall under the home-ownership rules of Box 1. Instead, the Box 3 tax regime for taxable income from savings and investments applies, which means that the interest can no longer be deducted. Since January 1, 2010 a home that has been offered for sale and temporarily rented out can revert to Box 1 (from Box 3), if the applicable maximum period for continuing the interest deduction has not expired (this term has been extended for one year, see above). At that time, the mortgage interest tax relief will reapply for the remainder of the term. This temporary measure, that according to the 2010 Tax Plan was to expire on January 1, 2012, has been extended to January 1, 2013.
The division of annuities between Box 1 and Box 3
Since 2001, a situation could arise where, for the purposes of levying tax, an annuity had to be split between Box 1 and Box 3. This situation arises when not all annuity contributions have been deducted. This has led to numerous administrative problems. It has now been decided that annuity payments in Box 1 will be taxed, regardless of whether or not contributions have been fully deducted. The levying of tax works as follows: regular payments and payments on surrender are taxed to the extent that they exceed the amount of the non-deductible contributions up to and including 2009, as well as the non-deductible contributions for 2010 and following years, to the extent that they do not exceed EUR 2,269 per annum. As of 2010, this will therefore lead to double taxation to the extent that the amount paid for non-deductible annuity contributions exceeds EUR 2,269.
Deduction of expenses for listed buildings
Maintenance costs for national heritage assets are deductible above a certain threshold. Until 2010, this did not apply to owner-occupied homes that were vacated awaiting sale, owner-occupied homes that, due to divorce proceedings, still qualify as such for two more years, owner-occupied homes that are retained as such during a stay in an institution falling under the Exceptional Medical Expenses Act (“AWBZ institution”), and owner-occupied homes that are retained as such during a temporary stay elsewhere. As of 2011, the above four categories will be dealt with in the same manner as other national heritage assets in Box 1.
Other measures
If the imputed income from an owner-occupied home exceeds the deductible interest for the owner-occupied home, then a deduction for having no, or only a small, owner-occupied home loan can be claimed. Measures will be introduced to limit the entitlement to a deduction for zero interest loans from directors-substantial shareholders, staff loans and the prepayment or deferred payment of interest. To stimulate SME investments, a Box 3 exemption for such investments has been introduced. In addition, a tax credit for the acquisition of an SME investment has been proposed.
Procedural law amendments
International exchange of information
Under the International Assistance in the Levying of Taxes Act (“IALTA”), the Dutch state exchanges information with other countries. However, such an exchange must be based on rules set out in the tax treaty with the relevant country or in European Union directives, such as the Mutual Assistance Directive or the Savings Directive. Exchange of information by the Netherlands based on the IALTA can occur on request or spontaneously. In the context of combating tax fraud, the 2011 Tax Plan proposes to make automatic spontaneous exchange of certain information possible. This measure will be worked out more fully in subordinate legislation, but from the explanatory note it is clear that it will primarily involve information concerning bank account details. National legislation already requires banks, insurance companies and life insurers to provide the Dutch Revenue with such information. The proposed amendment also makes this compulsory based on the IALTA. In our opinion, the Dutch state has, with this measure, not actually created the possibility for the automatic spontaneous exchange of information with other countries, in particular because the 2011 Tax Plan does not propose any amendments to the provisions of the IALTA that govern this spontaneous exchange. Furthermore, tax treaties must also allow for this possibility.
Changes to definition of partner 2011
As of 2011 a new definition for the general tax definition of “partner” will apply. In 2010 unmarried cohabitants can still elect to be considered tax partners. This option will be eliminated, partly as a result of the pre-completed tax returns. Cohabitants that are registered at the same address will automatically become one another’s partners, if they meet one or more of the following four conditions: they have a child together, jointly own a home, share a pension plan, and/or have signed a cohabitation contract before a civil-law notary. As of 2011, if one or both partners have been admitted to a nursing or care home, they can remain one another’s tax partner. The definition of partner as it applies to the Inheritance Tax Act does not completely correspond to this general definition of partner. The Gift and Inheritance Tax Act imposes additional requirements. For example, under the Inheritance Tax Act, unmarried cohabitants must both have reached the age of majority in order to qualify as partners. As of 2012, they must also include a mutual care clause in their cohabitation contract signed before a civil-law notary. This requirement does not apply to cohabitants who have resided longer than five years at the same home address. Under the Inheritance Tax Act, parents and children do not qualify as partners, unless one of them receives voluntary home care. Under the Inheritance Tax Act, a person can only have one partner. The measure that one could still remain tax partners if one of the partners resided in a nursing or care home, already applied under the Inheritance Tax Act in 2010.
Various miscellaneous proposals under the Tax Plan
· As of March 1, 2011, the excise tax for cigarettes and rolling tobacco will be increased. This price increase will amount to a little over 26 euro cents for 19 cigarettes and for 45 grams of rolling tobacco.
· The number of pre-completed items in the pre-completed tax return (“VIA”) will be expanded. The allocation of certain types of withholding taxes, income and assets will be made in the pre-completed tax return.
· In certain situations, foreign insurers now have to appoint a tax representative to file and remit any insurance tax owed. This obligation will be dropped, as it most likely infringes EU law. In addition, a provision with regard to where the policyholder/legal entity is based will be brought into line with EU law.
· The tax advantages for extremely fuel-efficient cars remain unchanged for 2011. These include benefits such as exemptions from private motor vehicle and motorcycle tax (“BPM”), and from motor vehicle tax (“MRB”) and a reduced 14% rate for additions to taxable income for company cars.
· The abolition of BPM and the accompanying increase of the MRB, that started in 2008, will be provisionally put on hold, pending a definitive decision on a kilometer levy.
· The purchase of diesel passenger cars that meet the Euro-6 standard, will be encouraged by a decreased BPM rate.
· The MRB for motorcycles will be increased in 2011, 2012, and 2013.
· The MRB for buses, as well as other motor vehicles, will be converted into a registration tax, effective 2012.
· There will be a statutory possibility to, at the taxpayer’s request, increase a finally determined allowance when this has been assessed too low, even when the term for filing an objection has expired.