The Netherlands Is Eliminating Certain Popular Corporate Tax Breaks

The Netherlands has a strong reputation for appealing to many multinational corporations thanks to its numerous tax breaks. Following scrutiny and a great deal of debate, the country is working to eliminate some of the popular tax breaks that attract these corporations to the country.

The Proposals

So far, the measures in question are only proposals, but if passed, they can negatively impact corporations. There are two measures proposed in the 2020 budget, aiming to ensure that multinational companies pay sufficient taxes, including in the Netherlands.

One measure would affect the tax on royalties and interests on payments that pass through or originate in the Netherlands and go to tax-haven or low-tax jurisdictions. The other would target the provision that previously let some multinationals based in the country pay zero taxes on corporate income via the ability to deduct foreign losses on home tax reports.

What Caused It

The new proposed measures come as a result of the recent public outcry over major multinationals admitting that they did not pay any Dutch corporate income tax. Specifically, Koninklijke Philips NV Philips and Royal Dutch Shell Plc admitted they did not have to pay corporate taxes.

This was just the most recent example of the heavy criticism that the Netherlands faces for letting various companies lower tax bills. Even the European Commission has criticized the country for these tax policies that could make “aggressive tax planning” easier.

September also saw an International Monetary Fund report released regarding “phantom” foreign investments that travel through empty corporate shells. This report highlighted the Netherlands as a major culprit, with it and Luxembourg accounting for almost half of the phantom FDI in the world.

Details on Limiting Deductions

One of the significant aspects of the proposal is removing some of the tax deductions associated with losses. This change should mean that many of the companies that previously paid minimal or no taxes in the Netherlands will have to start paying it.

The provision in question is the liquidation loss scheme. It has let multinational corporates offset their losses from liquidating overseas subsidies in certain situations, reducing their taxable profits within the Netherlands. Although the budget plan indicates that the Dutch government wants to limit liquidation loss in the future, there are no details about how it plans on doing so. Official estimates indicate that this could result in an additional 265 million euros in taxes paid.

Details on Targeting the Tax Havens

The other major element of the proposed changes applies to the conditional withholding tax and targets tax havens. This would apply beginning in 2021. The proposal is designed to target companies that use the Netherlands as a thoroughfare to move their profits into low-tax jurisdictions. This element of the proposal has additional details. Specifically, by 2021, the withholding rate should match the corporate income tax rate at 21.7 percent.

Proponents of this aspect of the plan indicate that annually, around 22 billion euros pass through the Netherlands to reach one of the 21 low-tax jurisdictions. The goal of this proposal is to change behavior, not raise revenue. Proponents hope it will have a prohibitive effect and encourage people to make changes. In fact, officials expect it to have a negligible budgetary impact.

Other Planned Changes

The Dutch government has been clear that it wants to let legitimate businesses use the country’s tax system. At the same time, it hopes to prevent “flow-through” entities from doing so and hopes to change liquidation loss rules. Additionally, the recent budget announcement featured plans to further delay the corporate tax income rate cuts that are planned.

Multinational companies that operate in the Netherlands should pay attention to the course of these proposals to see whether they will be affected.


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