Post by Sapphire Capital on Jul 11, 2008 23:49:19 GMT 4
Restriction of base erosion rules on interest and patent box liberalised
The lower and the upper house of parliament have adopted the Dutch tax plans for 2008, which have become effective as of January 1. Since the first announcement of the tax plans for 2008, there have been several governmental memorandums of amendments and parliamentary amendments to the proposals. In follow-up, two of the most significant changes will be explained below.
Restriction of base erosion rules on interest
One of the government amendments concerned the Dutch rules on limitation of deduction of interest in the Dutch corporate income tax act. Interest expenses regarding inter-company loans (loans from related parties, i.e. direct or indirect shareholding of at least 33 1/3 %) are not tax-deductible if the loan is connected to one of the transactions as defined in the law. These so-called tainted transactions are for instance a distribution of dividend, a repayment of capital or a capital contribution. Also, it covers the acquisition of shares, from both related and third parties.
If these transactions are financed with an inter-company loan, the interest expenses will not be deductible for corporate income tax purposes, unless the taxpayer can substantiate that the loan and the transaction are predominantly based on sound business reasons. A second exception has been made for situations in which the corresponding interest income is effectively subjected to a tax at the level of the related company that has granted the loan and the taxation is considered reasonable by Dutch standards. This implies, roughly speaking, a tax rate of at least 10%.
The Dutch legislator feared that maintaining this second exception - without adjustment - would lead to adverse budgetary consequences. By substantiating effective and reasonable taxation at the level of the interest receiving group company as meant in the second exception, taxpayers could obtain a tax advantage for the group of companies as a whole. Accordingly, the legislator introduced a change of law by means of a governmental memorandum of amendment to one of the two bills of the Dutch tax package 2008.
In situations that the taxpayer sufficiently demonstrates that the interest income is taxable at a tax rate of at least 10%, the tax inspector will nevertheless have the possibility to substantiate that either the debt or the corresponding transaction is not predominantly based on sound business reasons. The new possibility for the Dutch tax authorities to provide proof to the contrary, restricting the base erosion rules on interest deductibility for taxpayers, applies as of January 1 2008.
Liberalization of patent box
In 2007, the Netherlands introduced a favorable tax regime resulting - under conditions - in taxation of income derived from certain self-developed intangible assets at an effective tax rate of 10%.
One of the conditions for application of this so-called patent box regime was that the taxpayer should have been granted a patent. By means of parliamentary amendment to the Dutch tax package 2008, this criterion has been relaxed in a substantial way. As of January 1 2008, companies that have incurred certain qualified research and development costs are also entitled to opt for the patent box regime, even though no patent has been granted. The extension of the scope of the patent box is subject to the condition that these qualified research and development assets will only start to form part after December 31 2007.
source:
Suzanne Boers (suzanne.boers@nl.pwc.com) Rotterdam
PricewaterhouseCoopers +31 10 407 6268
The lower and the upper house of parliament have adopted the Dutch tax plans for 2008, which have become effective as of January 1. Since the first announcement of the tax plans for 2008, there have been several governmental memorandums of amendments and parliamentary amendments to the proposals. In follow-up, two of the most significant changes will be explained below.
Restriction of base erosion rules on interest
One of the government amendments concerned the Dutch rules on limitation of deduction of interest in the Dutch corporate income tax act. Interest expenses regarding inter-company loans (loans from related parties, i.e. direct or indirect shareholding of at least 33 1/3 %) are not tax-deductible if the loan is connected to one of the transactions as defined in the law. These so-called tainted transactions are for instance a distribution of dividend, a repayment of capital or a capital contribution. Also, it covers the acquisition of shares, from both related and third parties.
If these transactions are financed with an inter-company loan, the interest expenses will not be deductible for corporate income tax purposes, unless the taxpayer can substantiate that the loan and the transaction are predominantly based on sound business reasons. A second exception has been made for situations in which the corresponding interest income is effectively subjected to a tax at the level of the related company that has granted the loan and the taxation is considered reasonable by Dutch standards. This implies, roughly speaking, a tax rate of at least 10%.
The Dutch legislator feared that maintaining this second exception - without adjustment - would lead to adverse budgetary consequences. By substantiating effective and reasonable taxation at the level of the interest receiving group company as meant in the second exception, taxpayers could obtain a tax advantage for the group of companies as a whole. Accordingly, the legislator introduced a change of law by means of a governmental memorandum of amendment to one of the two bills of the Dutch tax package 2008.
In situations that the taxpayer sufficiently demonstrates that the interest income is taxable at a tax rate of at least 10%, the tax inspector will nevertheless have the possibility to substantiate that either the debt or the corresponding transaction is not predominantly based on sound business reasons. The new possibility for the Dutch tax authorities to provide proof to the contrary, restricting the base erosion rules on interest deductibility for taxpayers, applies as of January 1 2008.
Liberalization of patent box
In 2007, the Netherlands introduced a favorable tax regime resulting - under conditions - in taxation of income derived from certain self-developed intangible assets at an effective tax rate of 10%.
One of the conditions for application of this so-called patent box regime was that the taxpayer should have been granted a patent. By means of parliamentary amendment to the Dutch tax package 2008, this criterion has been relaxed in a substantial way. As of January 1 2008, companies that have incurred certain qualified research and development costs are also entitled to opt for the patent box regime, even though no patent has been granted. The extension of the scope of the patent box is subject to the condition that these qualified research and development assets will only start to form part after December 31 2007.
source:
Suzanne Boers (suzanne.boers@nl.pwc.com) Rotterdam
PricewaterhouseCoopers +31 10 407 6268