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Written by:
Nico Koppel


Parliamentary questions concerning taxation of directors-cum-controlling shareholders

Questions have recently been tabled in the Lower House regarding the scope for application in the Netherlands of the so-called Scandinavian system for taxing the profit and income of business owners. The essence of this system is that capital income and income from work are taxed separately, with a fixed-rate profit being assigned to assets and any surplus profit being taxed as if it were income from work. One of the questions that have come up is whether a Scandinavian-type system would be more practicable as well as fairer than the Dutch “customary wage” system. The precise method of determining a fixed-rate return on assets at the level of a business venture has been identified as a further topic for discussion.

According to Menno Snel, the Junior Finance Minister, it is complicated to separate out capital income and income from work where the two operate in tandem, as the boundary lines between the two are inevitably blurred. This is why the Scandinavian model involves the notional determination of the income from capital component, with all other income being treated as income from work. The concurrence of income from capital and income from work is particularly evident under the current Dutch tax system where it concerns the director-cum-controlling shareholder, who is liable for wealth tax where it concerns the shares he or she holds as well as having to factor in (notional) earned income because of the customary wage regime. Directors-cum-controlling shareholders are encouraged under the current Dutch tax regime to fix their customary wage at the lowest possible level, in addition to which the system allows them scope for long-term deferral of their “Box 2” taxation. The question as to whether modification of the existing Dutch system scheme would make things better has been identified as a topic of investigation within what has been dubbed the Building Block Path, which involves the Junior Minister by 2020 putting forward tangible building blocks and proposals for improvement and simplification of the tax regime, as an effort in the context of which, the Junior Minister has asserted, attention will be devoted inter alia to the scope for a genuine overhaul of the tax regime (and the current “Box”-based set-up with it).

Dutch version: Kamervragen belastingheffing van DGA

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