The Netherlands is canceling its top corporate tax rate cut and plans to offer other relief measures, including employment and investment tax credits, while introducing a carbon tax, according to the government’s 2021 tax plan.
In a September 15 release, the Dutch government announced that it will scrap the reduction of the top corporate rate, which was to be implemented in 2021, to pay for more coronavirus relief measures. The government said this change will allow it to offer several tax credits to encourage new investment and increase liquidity for employers and employees.
Although the high rate will remain 25 percent instead of being reduced to 21.7 percent, under the government's tax plan, the low corporate tax rate would decrease from 16.5 percent to 15 percent in 2021 as planned. Also, the low rate's application would be expanded to companies with profits of up to €245,000 (currently €200,000). This threshold would be raised again to €395,000 in 2022, the release says.
Under the new plan, multinational enterprises will “bear a fairer share of the tax burden,” according to the release, which notes that some businesses do not pay tax on the profit made in the Netherlands because they are able to offset losses or claim deductions. MNEs will see this ability reduced in 2021 through a more constant corporate tax amount and fewer opportunities for businesses to pay no tax. This will generate €555 million “on a structural basis," the release says.
In the last several months, the Netherlands has taken steps to rehabilitate its image as a tax haven with a favorable tax regime for MNEs. In June the Dutch government said it would withhold COVID-19 support from businesses that are based in tax havens or that make interest and royalty payments to tax havens.
Dutch lawmakers introduced a bill in July that would apply an exit tax to MNEs with annual revenue of €750 million or higher looking to relocate to low-tax jurisdictions, a proposal that has evoked strong pushback from businesses and could pose legal issues. The Dutch government also plans to introduce a proposal that tacks a withholding tax on dividends paid to companies in low-tax jurisdictions.
The Dutch government also plans to crack down on “informal capital structures” that allow companies to exploit the differences between tax systems and thereby avoid taxation. This practice is estimated to garner €173 million on a structural basis, according to the release.
The Netherlands is also considering whether companies that borrow capital should continue to receive a tax advantage. It is exploring an equity allowance and tightening of the general interest limitation rule.
“In difficult economic times, it is particularly important that some companies do not have more scope to reduce their tax burden than others,” the release says.
The new tax plan also contains a tax on carbon emissions developed to encourage companies to cut their emissions. Companies that fail to reduce carbon emissions by 55 percent by 2030 (the EU’s newly agreed on carbon emissions reduction goal) would have to pay €125 for each additional metric ton of carbon dioxide emitted in 2030. The plan includes a provision to renegotiate the rate after a recalculation from the Netherlands Environmental Assessment Agency.
The Netherlands also plans to also adjust vehicle taxes to be in line with tighter environmental standards and reduce the applicable tax rate for ships that use greener shore-side electricity instead of their own generators, the release says.
Businesses that agree to invest in new equipment or improvements would receive a job-related investment tax credit to be used to pay the salary tax and national insurance contributions, the release says.
Workers and elderly people would be eligible for an increased employment tax credit in 2021, and the government will reduce the basic income tax rate from 37.35 percent to 37.1 percent, according to the release.
Savers and small investors would also see their tax bills go down under the new plan because they would no longer be required to pay tax on assets up to €50,000 (€100,000 with a partner) starting in 2021. While the tax rate on income from savings and investments would increase from 30 percent to 31 percent, the release says those with savings and investments up to €220,000 (or €440,000 with a partner) would pay less tax.
Self-employed persons like freelancers and other entrepreneurs would have their tax allowance reduced every year until it reaches €3,240 in 2036, the release says. However, this would be offset by the employment tax credit and the change in income tax rates so that the self-employed will “still be better off next year,” says the release.
The tax plan also waives the transfer tax for homebuyers aged 18 to 35 to encourage and assist first-time homebuyers, the release says. On the other hand, the investor tax rate would increase from 6 percent to 8 percent.