Corporate income tax and minimum taxation

Earnings stripping measure
The maximum interest deduction under the earnings stripping measure is proposed to be increased to 25% of the adjusted profit by 2025, up from 20%. The government argues that this deduction percentage is more in line with the European average.

On the other hand, from 2025 onwards, real estate entities will not be subject to the threshold amount of interest deduction. This is an anti-fragmentation measure through which the government wants to prevent companies from being split up so they can benefit from the € 1 million threshold amount multiple times. For the purpose of this proposed measure, an entity qualifies as a real estate entity if during 50% or longer of the year its assets consist for at least 70% of real estate assets that are leased to third parties.

Concurrence of loss setoff and exemption for debt relief income
As of 1 January 2022, a loss setoff limitation applies whereby losses in excess of € 1 million can only be setoff up to 50% of the remaining taxable profit. As a result, the situation may arise that despite the existence of an exemption for debt relief income in a year, corporate income tax is due on debt relief income in any year. It is proposed that in situations with losses to be set off in excess of € 1 million, the debt relief income should always be fully exempt.

Liquidation loss provision
Two adjustments are proposed for the liquidation loss provision. First, in line with the intent of the provision, it is proposed that a reversal of a write-down of a capitalized receivable by the taxpayer will always be taken into account when calculating the amount sacrificed for a participation. Hence, this will also apply even if no use has been made of the revaluation reserve. It is also proposed to adjust the application of the intermediate holding provision. This concerns an adjustment to prevent that, contrary to the intention of the provision, a loss upon a sale of a participation held indirectly, which in principle is not deductible, can be converted into a deductible liquidation loss on a participation held directly.

Sister company merger
Under current law several tax regulations applicable to mergers are not applicable in the case of a simplified sister company merger, in which all shares in the merging companies are held directly by the same person. This is because no shares are issued in these situations, which is what these tax regulations presume. In order to be in line with civil law, it is proposed that the simplified direct sister company merger falls within the scope of the tax regulations applicable to mergers.

Qualification of legal forms
Last year, a bill was adopted that provides for changes to the Dutch qualification policy for legal forms by 2025. One major change concerns the open limited partnership (open CV) and comparable foreign open limited partnerships which will become fiscally transparent. Because of this transparency, as of 1 January 2025, they would no longer be considered related entities for purposes of article 10a Dutch Corporate Income Tax Act 1969. To prevent this, it is proposed to qualify such entities as related entities. The same applies to non-comparable foreign entities qualified as transparent. This also seems to apply to limited partnerships that already qualify as transparent under current law (such as private limited partnership-like entities). Furthermore, this section contains some other (technical) adjustments. Unfortunately, the possible recharacterization of a limited partnership-like entity into a common fund is not addressed.

Introduction of ATAD1 general anti-abuse rule
At the request of the European Commission, the general anti-abuse rule (GAAR) from ATAD1 will be codified. This is not intended to be a material change from the current application of the doctrine of fraus legis.

Minimum taxation
On 31 December 2023, the Minimum Taxation Act 2024 came into force. Amendments to this act are proposed that relate to new OECD administrative guidelines. Furthermore, the subject-to-tax provisions of the interest deduction limitation of article 10a Dutch Corporate Income Tax Act 1969, the participation exemption and the object exemption are clarified in order to assess whether the minimum tax is a tax levied on profits that is relevant to the application of these tests.

Reversal of the abolition of the own share purchase facility
The abolition of the repurchase facility for the repurchase of own shares had been intended to become effective in 2025, but the government has now announced the reversal of this abolition.

New group concept for conditional withholding tax
Effective 1 January 2025, a new group concept is proposed for the Withholding Tax Act 2021. Under this Act a 25.8% withholding tax applies on interest, royalties and dividends in case of payments by Dutch corporate taxpayers to associated companies resident in listed low-taxed or non-cooperative jurisdictions as well as in certain abusive situations.

The reason for introducing a new group concept is that signals have been received that the prior “collaborating group” concept leads to ambiguity in many cases when determining a qualifying interest. The proposed new group concept is referred to as “qualifying unity”. The concept focuses on situations in which entities act jointly with the primary objective, or one of the primary objectives, of avoiding the imposition of withholding tax on one of those entities. In particular, this also prevents structures to which the hybrid provision applies from falling within the scope of the withholding tax due to the rigid operation of the rebuttal rule, while no abuse occurs.

Mandatory nature of withholding tax exemption
The government proposes mandatory application of the withholding tax exemption for dividend withholding tax purposes if dividends are paid in participation relationships or if both the beneficiary to the income and the withholding agent are part of the same fiscal unity for corporate income tax purposes. The government thus wants to ensure that beneficiaries to the income, too, can effectively file a notice of objection if a withholding agent does not apply the withholding tax exemption.