The government of the Netherlands has proposed sweeping tax changes that would lower the country's corporate tax rate and align its international tax rules more closely with EU law.
The proposals, released as a white paper on April 29, would reduce the corporate tax rate from 31.5% to 26.9% and extend loss-relief rules to countries outside the Netherlands but within the EU. The white paper, entitled Working towards profits, is designed to boost the competitiveness of the Dutch international corporate tax system and help protect it from challenges by the European Court of Justice.
An important restriction is that the proposals must be revenue-neutral. Their cost will be offset by limiting the time allowed for the carryover of tax losses, abolishing the deductibility of start-up losses and liquidation losses, abolishing the equalization reserve for life insurers and abolishing the depreciation of real property where its fair market value equals or exceeds the tax book value.
"The proposed changes to international loss relief rules seem watertight [from ECJ challenges] but it depends on the details of how they are legislated," said Eelco van der Stok, a Dutch tax partner at Freshfields Bruckhaus Deringer in London. "If there are any doubts, they will probably ask the European Commission in advance to make sure."
Pieter Elias, a Dutch tax partner at NautaDutilh in London, said that the attitude of the government in the Netherlands regarding EU law had changed. "Recently they have been very proactive but that has not always been the case in the past," he said. "They got burnt by the Bosal case and that cost them a lot of money. Now they are thinking that it is better to be cautious and not wait to get trapped by new case law."
The white paper contains only brief remarks or notes that further study is required on some of the tax-reform measures. Parliament will now debate the measures before introducing a bill later this year. The changes are scheduled to take effect from January 1 2007.
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