1. Possibility of Dutch loss compensation
The Dutch Corporate Income Tax Act (CITA) prescribes that a loss can be offset against future profits for up to 9 years (the carry-forward period) after the loss occurred. The entitlement to loss compensation expires after the carry-forward period ends. If your company has Dutch tax losses and the carry-forward time period for these losses is running out, thereby limiting loss compensation, it might be possible to prevent the expiration of these losses by taking timely measures. For example, by means of the realisation of hidden reserves in your business assets. All actions need to be in accordance with the Dutch rules of sound business practice.
2. Postpone Dutch losses
Under the Dutch CITA, a loss may be carried back 1 year. If it is not possible to carry back to the preceding year, it could be beneficial to prevent or postpone the occurrence of losses for Dutch tax law purposes in view of the limited carry-forward period of 9 years. Also in this respect, the rules of sound business practice must be observed.
3. Mandatory implementation of the Dutch work-related costs scheme
From January 1 2015, employers in the Netherlands are obligated to apply the new Dutch work-related costs scheme as the option to apply the transitional regime will be withdrawn. This new scheme includes some far-reaching changes of the existing regime for tax-free allowances and benefits for employees. The transition will require efforts from both payroll administration and the accounting department. Because it will probably take some time to implement the new rules, it is advisable to start the preparations early. It may also be necessary or desirable to make amendments to employment conditions. If an employer has already switched to the work-related costs scheme, it should be noted that amendments are proposed on a number of essential points from January 12015. These include, for example, the introduction of a group scheme and the implementation of new specific exemptions. It is advisable to investigate what these changes will mean for your organisation without delay.
4. Amendments to Dutch pension scheme before January 1 2015
Employers in the Netherlands must conform their employees’ pension scheme to new Dutch legislation from January 1 2015 (Wet Witteveen 2015). The Act lowers the maximum accrual percentages considerably and caps pensionable income at €100,000 ($123,000). From that date, it will no longer be possible for employees to accrue tax-facilitated pension on their salaries of more than €100,000. Therefore, a new voluntary net-savings facility for individuals is being introduced in the Dutch Personal Income Tax Act simultaneously with the above mentioned Act. If at January 1 2015 the pension scheme fails to comply with the new rules, the employee’s entire accrued pension in this scheme is subject to tax at once. If the Dutch employer is not able to comply with these new pension rules, he can prevent the taxation of the employees’ entire accrued pension by submitting a request for splitting the pension scheme into a part that complies with the Act, and a part that does not. This part is then subject to taxation at once. The request must be received by the Dutch Tax Authorities before January 1 2015.
5. Dutch 30% ruling and pension
From January 1 2015, employers in the Netherlands who facilitate pension accrual for employees that have been granted the 30% ruling (a Dutch facility for expatriates), will likely be able to accrue pension for these employees to the sum pertaining to the 30% ruling as well. This is one of the consequences of the renewed work-related costs scheme, for tax-free allowances and benefits. Under this scheme, all tax-free allowances and benefits, including the 30% ruling, form part of the wage for final levy purposes and hence form part of the taxable wage. The employer who applies this work-related costs scheme – which is mandatory from January 2015 onwards – may therefore be capable of accruing pension for his employees on the 30% ruling sum.
6. Dutch tax treaties and severance pay
An employee who has recently been dismissed and who was (partially) working in the Netherlands at that time or shortly beforehand, may have to deal with the application of a Dutch double tax convention on their severance pay. Since July 2014, the commentary in the OECD Model Tax Convention has been extended with guidelines on the allocation of the right to levy tax on severance payments in cross-border dismissal situations. The approach prescribed by the OECD differs from the existing guidelines in Dutch case law in a number of respects. Since the Dutch State Secretary of Finance has indicated the Netherlands’ intention to apply the OECD commentary dynamically, it may be necessary in some situations to (re)determine whether and to what extent the Netherlands has the right to levy tax on severance payments in an international context.
7. Dutch payroll tax and cross-border employment
An employer who withholds Dutch payroll tax on the full income of employees with foreign working days, should consider whether international tax rules provide grounds to assume that the Netherlands has the right to levy tax on the employee’s full employment income. If a Dutch double tax treaty allocates (part of) the employee’s income to another country, this may be taken into account in the Dutch payroll administration. Hence, in that case, it is possible to limit the withholding of Dutch payroll tax to the portion of the income that is allocated to the Netherlands. This is also relevant when determining the level of the tax-free margin in the work-related costs scheme. An up-to-date record of an employee’s working days in the Netherlands and abroad should be kept.
8. Purchase of real estate
Are you planning to buy real estate? In that case, to have the transfer take place before January 1 2015 might be a good recommendation. Real estate purchased with Dutch transfer tax before January 1 2015 may fall within the scope of the temporarily extended 36-month scheme in the event of subsequent sale. Within the 36-month scheme, prospective buyers of real estate may profit from a decreased transfer tax base. The extended scheme ends on December 31 2014, after which the regular scheme of six months will be reintroduced.
9. Sale of real estate
Are you planning to sell new real estate that has been used as a business asset or has been let? Note that under certain conditions you are exempted from Dutch transfer tax if it concurs with Dutch VAT. The overlap scheme has been extended temporarily from 6 to 24 months, but the extension ends on December 31 2014. Consequently, it may be important to realise your real estate transaction before year end.
10. Telecommunications, radio and television broadcasting and electronic services
Suppliers of telecommunications, broadcasting and electronic services within the EU might be confronted with new VAT rules. From January 1 2015, the VAT on those services will be taxed in the state where the non-business customer is located. To meet all VAT obligations, those suppliers are required to have functioning procedures for identifying the customer’s location. From January 1 2015, the Dutch VAT on telecommunications, broadcasting and electronic services from a supplier established within the EU to non-taxable persons established within the EU will be charged in the customer’s state of location.
11. Excise duty on tobacco products
Companies that make or trade in tobacco products in the Netherlands should remember that the excise duty on tobacco products (except for cigars) will be increased from January 1 2015. The excise duty on a packet of 19 cigarettes or a 40 gram packet of rolling tobacco will be increased by €0.09.
12. Tax refund and EU law
If a company is entitled to a refund of Dutch tax due to a levy in breach of EU law, the Netherlands might be obliged to repay the charged with interest for the period between the levy and the refund. From January 1 2015, the law provides that – insofar as the company is not already receiving reimbursement of interest – it is entitled to interest on the repayment of the tax unduly levied. The company must file a request with the Dutch tax authorities within six weeks after the refund.
13. Review tax refunds of the past five years
If your company received a Dutch tax refund in the 5 years before January 1 2015 because the levy appeared to be in conflict with EU law, it might be entitled to a payment of interest calculated for the period between the levy and the refund. Companies qualifying for such a payment of interest must file a request with the Dutch tax authorities within six weeks after December 31 2014.
Subject to change
The Dutch tax tips and points to note are based on existing Dutch legislation and case law and written in anticipation of the measures proposed in the 2015 Dutch Tax Package. The Senate has not yet approved the Package, so it remains to be seen which of the proposals will become law. Consequently, this contribution is subject to change.
Jessica Litjens and Ciska Wisman PwC, Rotterdam, The Netherlands.
