Budget Day Special

21 September 2021

Traditionally, the Dutch Ministry of Finance presents its budget, including its tax plans for the coming year, on the third Tuesday of September ('Budget Day' or in Dutch Prinsjesdag).

Due to COVID-19, the Tax Plan for 2022 combines specific COVID-19 related proposals and general measures. The draft bills will be discussed by the Dutch Parliament and may be amended during the legislative process. If approved, most of these bills are expected to enter into force on 1 January 2022. We have outlined the main proposals below.

CORPORATE INCOME TAX

1. ATAD2: Reverse hybrids
The existing anti-hybrid rules will be extended with a provision which targets reverse hybrid entities. Based on the proposals, partnerships that are tax transparent in the jurisdiction of incorporation or establishment but non-tax transparent (opaque) in the jurisdiction of the related participants will qualify as reverse hybrids. In such case, the partnership can in effect become subject to Dutch corporate income tax and withholding tax. Exceptions may apply to certain investment funds.

2. Changes to tax loss carry-forward mechanism
Currently, the tax loss carry-forward period is limited to six years (nine years for losses incurred prior to 2019). As of 1 January 2022, losses can be carried forward indefinitely. The new rules will be accompanied with restrictions, i.e. losses may be offset in full against profits up to EUR 1 million, whereas the set-off will be limited to 50% for profits in excess of the EUR 1 million threshold.

3. Limiting the set-off of dividend withholding tax and tax on games of chance
The government wishes to limit the set-off capacity of taxpayers by restricting the credit on domestic withholding taxes to the amount of corporate income tax that is owed in one year. The non-deducted withholding taxes can be carried forward to a later year.

4. Transfer pricing mismatches
Earlier this year, the Dutch Ministry of Finance launched an international consultation which unilaterally addressed transfer pricing mismatches. Mismatches can, for example, occur when Dutch taxable income is adjusted downwards, but the foreign jurisdiction does not make a corresponding upward adjustment. Today, the government released the bill which takes into account the input of the internet consultation. Please refer to our April 2021 Transfer Pricing News Update.

5. Adjusting the tax brackets
The lower bracket of the corporate income tax rate will increase to EUR 395,000 in 2022 (instead of EUR 245,000 in 2021). The corporate income tax rate does not change and remains at 15% (first bracket) and 25% (second bracket). Therefore, profits up to EUR 395,000 will be taxed at 15% and any excess profits will be taxed at 25%.

WAGE TAX

6. Changes to tax treatment of stock option rights
Currently, stock option rights are treated as remuneration for wage tax and income tax purposes and are taxable when these options are exercised. This may result in liquidity issues. To prevent this, the legislator now proposes taxation at the moment when the shares can be traded. Please note that the value at that moment will also be considered. The proposed scheme is not mandatory but an option for the taxpayer. The amendment aims to be beneficial to start-ups and their employees.

7. 'Working-from-home' allowances
Various amendments are expected as of 2022 and these include a specific wage tax exemption for the costs of working from home. The exemption will amount to EUR 2 (per employee, per day). Additionally, the headroom for tax-free reimbursements will remain 3% of the fiscal wage sum up to EUR 400,000 (and 1,18% for wage sum exceeding the aforementioned amount).

REAL ESTATE TRANSFER TAX

8. Changes for individuals
Private individuals (aged 18-35) buying their first home may benefit from a RETT exemption. To apply for this exemption, the value of the acquired property must not exceed EUR 400,000. The government will propose some changes, which are mainly of a technical nature, to curb abusive tax arrangements.

VARIOUS

9. Reducing the 'landlord levy'
The 'landlord levy' will be reduced to compensate landlords for freezing the rent prices for social housing.

10. Energy storage
Taxpayers may face double taxation for energy storage. The legislator proposes amendments which should prevent energy tax from being levied twice on the same electricity (i.e. at the time that the electricity is stored in the battery and when the electricity is 'used').

11. Simplifying the VAT one-stop shop for e-commerce transactions
The one-stop-shop system for e-commerce will be simplified by means of an administrative easement. A negative VAT return will automatically be regarded as a refund request.

12. Simplifying the WBSO application system
The application system for the WBSO (a scheme related to R&D expenditures) will be simplified. Additionally, the legislator intends to clarify the costs that fall within the scheme's scope.

13. Environmental Investment Allowance
The Environmental Investment Allowance aims to facilitate investments in environmentally friendly assets, entitling taxpayers to a tax allowance. The government proposes to increase the rate of the allowances to stimulate investments in these categories of assets.

OTHER DEVELOPMENTS

The government is currently also working on other bills. We have highlighted several of the proposals, with some of them pending. Updates on these matters are expected in the next couple of months or in early 2022.

14. Dutch tax qualification of partnerships
Earlier this year, an internet consultation regarding the Dutch tax qualification of partnerships was launched. To tackle mismatches, the proposals under consultation provided that (i) Dutch limited partnerships and (ii) foreign partnerships comparable to a Dutch partnership will be treated as tax transparent for Dutch tax purposes going forward. Given the large number of responses during the internet consultation, the bill will be postponed until winter 2021/2022.

Please refer to our April 2021 Tax News Update.

15. DAC7
Earlier this year, the European Commission adopted DAC7 rules. DAC7 introduces new reporting obligations to digital platforms. The Netherlands envisages to present the bill in Spring 2022, ahead of its implementation on 31 December 2022 at the latest.