BDO Corporate Tax News

Netherlands - Changes proposed to Minimum Tax and Subject-to-Tax Rules

The Netherlands’ Budget Day proposals for 2025, which were published on 17 September 2024, include changes to the legislation enacting the global minimum tax. Other proposals that would affect corporate taxpayers include changes to the deductibility of interest expense and the dividend withholding tax exemption, and a new definition of a group for purposes of the conditional withholding tax and an extension of the definition of related parties (for a comprehensive analysis of the Budget Day proposals, see the tax alert prepared by BDO in the Netherlands).

Minimum Tax Act 2024 (MTA)

The MTA, which transposed the EU Minimum Tax Directive into Dutch domestic law and became effective on 31 December 2023, introduced a tax to ensure that multinational and domestic groups with a turnover of EUR 750 million or more pay at least a 15% effective tax rate on their profits. The directive is based on the OECD Pillar Two model rules released at the end of 2020 (for prior coverage, see the tax alert dated 21 December 2021). Following publication of the model rules, the OECD published several sets of administrative guidelines in February, July and December 2023 and June 2024 (for prior coverage, see the tax alert dated 24 July 2024 and the article in the December 2023 issue of Corporate Tax News). Because the Dutch MTA is based on the OECD Model Rules and commentary, the OECD commentary can serve as a source of interpretation so the Dutch government has proposed to amend the MTA to incorporate the OECD administrative guidance.

If the budget measures are enacted as proposed, as from 1 January 2025, several elements of the administrative guidance will be incorporated into the MTA and some technical changes will be made.

Based on the current proposal, the amendments to the MTA would apply retroactively as from 31 December 2023 provided the measures are not burdensome for taxpayers. For four of the measures, however, the government does not consider this acceptable, and therefore proposed that the following changes only apply for financial years starting on or after 31 December 2024:
  • Tiebreaker between IFRS and Dutch GAAP under the local financial accounting rule for the QDMTT;
  • Application of the “excess negative tax expense” administrative procedure in cases where the top-up tax percentage is higher than 15%;
  • Reduction of the SBIE if an ultimate parent entity is subject to a deductible dividend regime; and
  • Hybrid arbitrage arrangement rules (but once effective, these rules still apply to arrangements that were entered into after 15 December 2022).
Interaction of Pillar Two with CITA Subject-to-Tax Rules
The Dutch Corporate Income Tax Act (CITA) includes subject-to-tax rules that apply in relation to various (anti-abuse) measures, which are used to determine whether a company is sufficiently taxed on its profits. These rules provide an escape from the (anti-abuse) measure in situations where the relevant asset, transaction or participation is subject to a reasonable level of taxation. To date, it has been unclear whether the 15% minimum tax is considered a tax on profits and whether the subject-to-tax rules would be met by including that tax. The government has proposed to revise the CITA to clarify that qualifying Pillar Two top-up taxes would count as tax paid for purposes of the following subject-to-tax rules:
  • Interest expense deduction limitation that restricts the deduction of intragroup financing costs in specific ‘abusive’ situations;
  • Participation exemption; and
  • Object exemption.
The proposed amendments to the subject-to-tax rules do not cover (anti-abuse) rules relating to differences between corporate tax systems, such as the transfer pricing mismatch rules or entity classification mismatches. In determining whether a transaction or asset is included in a tax on profits for purposes of these anti-abuse rules, the explanatory memorandum to the 2025 Tax Budget states that only regular profit taxes in the relevant jurisdiction would be considered. The memorandum confirms that a taxpayer will meet these subject-to-tax rules if it can show that a qualified Pillar Two top-up tax results in a top-up tax percentage of 15% in relation to the transaction or asset.

Lisanne Rijff
BDO in Netherlands
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