The Tax System Study Committee’s report was published on April 7, 2010, with the results of a preliminary study of various scenarios to revise the Dutch tax system in a budget-neutral manner. The most important conclusions are that major changes to the tax system are not advisable, and leveling off the tax rate structure and neutralizing the difference between equity and debt are to be recommended. We emphasize here that it is ultimately up to the new government and the new composition of the Lower House to determine which of the Study Committee’s conclusions and recommendations will result in concrete measures.
Corporate income tax
The Study Committee reached the following conclusions with regard to the interest issues in corporate income tax:
· The Study Committee’s preference is for the introduction of a notional net-worth deduction instead of disregarding interest, inspired by the Belgian notional interest deduction. This would result in more equal treatment of equity and loan capital and offer tax stimulation in favor of financing from equity. The Study Committee assumes a notional deduction on a scale, for example, of 4% of the equity for tax purposes. This will have to be adjusted. The value for tax purposes of any participations, both domestic and foreign, must be deducted from the equity for tax purposes.
· If the balance of equity minus the value of the participations for tax purposes is negative, the notional net-worth deduction becomes a notional addition to income. Effectively, this part of the measure, if there are participations, boils down to the cancellation of the interest deduction considered to refer to the financing of these participations, even if it were a notional percentage.
· Any notional net-worth deduction/addition to income could lead, according to the Study Committee, to the lapse of the existing interest deduction restrictions.
VAT
The Study Committee reached the following conclusions with regard to VAT:
· Increasing the VAT portion of the tax mix will further bolster the solidity of the tax system. It could lead to an improvement in the tax system’s efficiency. The proceeds could be used to reduce direct taxation and to finance the Study Committee’s other proposals.
· One single VAT rate of 19% would contribute to these goals. This means that the reduced VAT rate would disappear.
· Tidying up VAT exemptions should be considered within the EU.
Environment
Taxes are, in principle, an efficient instrument in giving shape to environmental policy. The Study Committee judges that this instrument is often correctly wielded. More extensive use of this, however, must be considered together with other instruments.
Various
· The Study Committee proposes that the mortgage interest deduction in personal income tax be gradually reduced.
· The Study Committee believes that increasing the highest rate of personal income tax only has symbolic value, and therefore rejected this proposal.