Dividend withholding tax proposal nixed: substitute propositions

The Dutch Cabinet, having announced in response to news that Unilever would not be relocating its headquarters to the Netherlands that it would be reconsidering its proposal to abolish the dividend withholding tax, has since – as expected – dropped said proposal altogether. The financial resources this has freed up have been earmarked to benefit the business sector. In its attempt to ensure a proper business establishment climate, the Cabinet has now come up with the following proposed measures:

• the higher corporation tax rate with effect from the year 2021 is to be cut from 22.25% to 20.5% (which is half a percentage point less than the 21% mentioned in the coalition government agreement). The current higher rate will be maintained at 25% throughout 2019;
• the lower corporation tax rate too is to be reduced further, to 15% by 2021 (or one percentage point less than the 16% mentioned in the coalition government agreement);
• the Cabinet in its drive to bring down employer’s contributions on labour is proposing the creation of a structural reserve in the amount of 200 million euros from 2021 onwards. It is not clear at this early juncture how exactly the reduction of employer’s contributions is to be realised;
• a transitional measure is being implemented in mitigation of the limitation of depreciation of owner-occupied buildings for corporation tax purposes, in that the old regime will continue to apply – until the three-year term has been completed – to buildings whose original occupation date precedes the first of January 2019 and whose depreciation to date has covered fewer than three years. The book value may thus drop below 100% of the so-called WOZ value (this being the value for the purpose of the Valuation of Immovable Property Act of the Netherlands);
• having originally been provided for until 11.00 a.m. on 25 October 2017, the retroactive effect of the emergency repairs in a fiscal entity sphere has been extended to the first of January 2018 to avoid allowances having to be made in the corporation tax return for 2017 for any such emergency repair measures as have not yet been anchored in legislation;
• for reasons of transitional law the proposed reduction of the term of the “30 percent ruling” regime from eight to five years is not to apply where this would cause the curtailed term to expire in 2019 or 2020;
• the higher of the research and development work related allowance brackets is to be raised from 14% to 16% in 2020;
• the current-account measure affecting directors-cum-controlling shareholders – which was announced in the context of the cover letter accompanying the 2019 Tax Plan package – is to undergo mitigation, in that exemption is to be granted not only for existing, but also for newly contracted indebtedness in connection with the director-cum-controlling shareholder’s own home, in addition to which a 500,000 euro threshold for the director and his or her life partner jointly is being introduced;
• the erstwhile proposal to abolish dividend withholding tax involved REITs being banned from engaging in direct investment in Dutch-based property, as a measure which has since been rescinded owing to the abolition proposal itself having been withdrawn.

The Cabinet’s decision not to abolish the dividend withholding tax has prompted the proposed introduction of a withholding tax on dividend payments to low-tax jurisdictions being deferred, a need having been identified for closer scrutiny of the withholding tax aspects within a dividend tax sphere before further steps are taken. The proposed withholding taxes on interest and royalties to low-tax jurisdictions by contrast are to go ahead as planned as at the first of January 2021, this being the original effective date.

Dutch version: Afschaffing dividendbelasting gaat niet door: vervangende voorstellen