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Dutch Tax Changes Confirmed In Coalition Agreement

Thursday, October 12, 2017

A number of proposed tax changes intended to boost Dutch competitiveness and combat tax avoidance have been included in the official agreement between the four parties forming the next Government of the Netherlands.

The coalition agreement published on October 10 represents a program for government for the period 2017 to 2021 and includes important changes to both corporate and personal income tax.

The agreement confirms that the main rate of corporate tax will be reduced in stages from 25 percent to 21 percent, with the 20 percent lower rate of corporate tax on profits up to EUR200,000 (USD237,000) to be lowered to 16 percent.

It is also confirmed in the agreement that the 15 percent dividend tax will be partially abolished in order to attract more foreign investment. However, to prevent the establishment of "mailbox structures," the coalition intends to introduce withholding taxes on payments of royalty and interest payments to low-tax jurisdictions. And to further its commitment to adhere to the OECD's BEPS recommendations and encourage equity financing, the new Government will seek to limit the deductibility of interest payments.

Furthermore, the coalition supports the establishment of a black list of "non-cooperative jurisdictions" in the area of taxation.

With regards to personal income tax, the document confirms that the income tax structure will be reduced from four brackets to two, of 37 percent on income up to EUR68,000 (USD80,470), and 49.5 percent on income exceeding this threshold. At present, personal income is taxed at progressive rates up to 52 percent, which applies to income exceeding EUR67,072.

To offset the cost of these tax cuts, it is proposed that the lower rate of value-added tax will be increased from six percent to nine percent.

In other tax measures, the coalition has agreed to higher environmental taxes, with a carbon price to be introduced in the electricity sector, and the possible introduction of noise and pollution taxes on the aviation sector, including a flight ticket tax.

It is expected that the new Cabinet will be sworn in later this month. However, it is not known when detailed legislative proposals will be introduced.

In addition, it is unclear how the new tax proposals, particularly the plan to partially remove withholding tax on dividend distributions, will affect pending legislation designed to align the dividend tax treatment of holding cooperatives, which are frequently used in international holding company structures, with that of private companies (BVs) and public companies (NVs).