Memorandums of amendment to Dutch minimum tax act and Tax Plan 2024 issued

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Dutch version

On 13 October 2023, the Dutch State Secretary of Finance issued two memorandums of amendment relating to current legislative proposals. The first memorandum regards the Dutch Minimum Tax Act 2024 (‘DMTA’), which is the Dutch implementation of the OECD’s Pillar 2 Model Rules. This memorandum of amendment to the DMTA (‘DMTA MoA) mainly aims to align the DMTA to the Administrative Guidance issued by the OECD in February 2023 (‘OECD February 2023 Administrative Guidance’) and July 2023 (‘OECD July 2023 Administrative Guidance’). The second memorandum of amendment regards the Tax Plan 2024 (‘TP2024 MoA’) and comprises several adjustments to the Dutch tax regimes, some of which are linked to the Pillar 2 developments. The most relevant changes are discussed below.

Qualifying Domestic Minimum Top-up Tax Safe Harbour

One important change proposed under the DMTA MoA relates to the recently introduced permanent safe harbour for Pillar 2, for Qualifying Domestic Minimum Top-up Taxes (‘QDMTT Safe Harbour’), introduced in the OECD July 2023 Administrative Guidance. In case a qualifying domestic top-up tax with regard to a certain jurisdiction meets three requirements (the Accounting Standard, the Consistency Standard and the Administration Standard), a group in scope of Pillar 2 may opt for the QDMTT Safe Harbour to apply with regard to that jurisdiction. This has the effect that the group does not need to perform an extra calculation to determine the income inclusion rule (‘IIR’) or undertaxed profits rule (‘UTPR’) over that jurisdiction’s group entities, but only has to perform the calculation for the qualifying domestic top-up tax.
The Accounting Standard provides for a tie-breaker rule, which determines the accounting that may be used for calculating the domestic top-up tax.

The Accounting Standard stipulates that the local accounting standard of group entities in a jurisdiction may only be used for this calculation, if all of these group entities are obliged by national law to maintain their accounts in this standard, or if the standard is subjected to external financial supervision. Furthermore, the local accounting standard of group entities may not be used in case not all entities meet the previous requirements, or if the reporting year of the local financial statements deviates from the reporting year of the consolidated group’s financial statements. If the local accounting standard may not be used, the Accounting Standard in principle requires that a domestic top-up tax is calculated under the financial reporting standard used when preparing the consolidated financial statements by the ultimate parent entity (‘UPE’) of the group.

The State Secretary has aimed to align the Dutch qualifying domestic top-up tax with the Accounting Standard, by referring to the rule. Prior to the revision, the Accounting Standard likely would not be met by the Dutch domestic top-up tax (as originally proposed), as the OECD July 2023 Administrative Guidance seems to require that a multinational enterprise group does not have any optionality in choosing under which accounting standard it calculates its domestic top-up tax.

The DMTA MoA features a delegation provision, through which the criteria relating to the Consistency Standard and the Administration Standard can be incorporated into the rules.

UTPR Safe Harbour

The DMTA MoA also features the UTPR Safe Harbour, which was introduced in the OECD July 2023 Administrative Guidance. This temporary safe harbour would shut off the top-up tax to be collected under the UTPR for entities resident in the jurisdiction of the UPE, provided that this jurisdiction levies a profits tax at a nominal rate of more than 20%. The safe harbour may be elected for financial years starting on or before 31 December 2025 and ending before 31 December 2026. Electing this safe harbour for the UPE jurisdiction entails that the CbCR Safe Harbour may not be applied with regard to the UPE jurisdiction in any later year. Therefore, if the CbCR Safe Harbour can be applied, it could be strategic to apply this safe harbour rather than the UTPR Safe Harbour. This UTPR Safe Harbour in particular seems relevant in relation to multinational enterprise groups with UPEs located in UPE jurisdictions which will not implement a qualifying domestic top-up tax in the short run and with a nominal corporate income tax rate of above the 20%, such as for instance the USA or Brazil.

CFC tax allocation

The DMTA MoA features a change to align the DMTA with the Administrative Guidance issued by the OECD in the OECD February 2023 Administrative Guidance, with regard to the treatment of loss making CFC parent entities. In case a CFC-parent were to be in a stand-alone loss position, but due to the inclusion of CFC income has received a smaller offsettable loss, and also a credit which can be used to offset taxation over future income, the new rule provides that in principle this credit can be used in a future year to raise the effective tax rate of the CFC parent state. The conditions under which this rule may apply will be published in delegated legislation.
Another development that ties to CFC taxation, is that in the second TP2024 MoA a change to the Dutch CFC regime of art. 13ab of the Dutch Corporate Income Tax Act 1969 (‘DCITA’) is proposed. The change entails that a qualifying domestic top-up tax levied from a CFC may be used to offset the tax levied under art. 13ab DCITA over the CFC’s income. Furthermore, the burden of proof that has to be fulfilled when a Dutch taxpayer wants to offset foreign taxes for the tax levied under art. 13ab DCITA is lowered, by replacing the words ‘to be demonstrated’ with ‘to be made probable’.

Non-deductibility of top-up taxes

Another change proposed in the TP2024 MoA is the amendment of art. 10 of the DCITA, which entails that that top up taxes levied under the DMTA may not be treated as deductible from the taxable base of the DCITA.

Next steps

Both the DMTA as well as the Tax Plan 2024 need to be adopted by the Dutch Senate, before entering into effect. The proposals have already been adopted by the Dutch House of Representatives. The Dutch government is obliged to implement the DMTA before 31 December 2023, to meet its obligations under EU Directive 2022/2523 of 14 December 2022.

Source: Letter to the House of Representatives on notes to the report on the bill of the Tax Plan 2024 package, no. 2023-0000226627, Ministry of Finance, 13 October 2023