The Dutch government has announced a study of measures relating to the treatment of group interest and participation interest in corporate taxes in a bid to create a more attractive, more balanced and simpler corporate tax environment.
In a letter to the Lower House of Parliament on December 15, the ministry of finance said representatives from trade and industry, tax consultancy practice and the university community will be involved in the investigation.
The study will focus on the possibility of making group interest non-deductible for the debtor and non-taxable for the creditor. Or alternatively the option of reducing the effective tax rate for both interest payments and receipts on group loans and to limit deduction on participation-related borrowings. Any revenue raised would be used to cut the corporate tax rate.
If implemented, the changes would have two advantages for the business climate, said a statement from the ministry of finance.
"The tax burden will become less for many companies. And it is attractive for internationally operating companies to keep or establish their treasury functions in the Netherlands. This is geared to the Cabinet's policy to attract the head offices of large companies," the statement said.
Now the fiscal treatment encourages the use of borrowed capital. This leads to a distinction between borrowed capital and own assets based for fiscal, rather than economic reasons. The government said the changes would end the unintentional fiscal subsidy of takeovers of Dutch companies by private equity financed by borrowed capital.
Tax professionals have mostly welcomed the proposed changes.
"The issues signalled with respect to the Dutch tax treatment of group interest and interest on participation related borrowings may to a great extent be solved," said Michael Molenaars, from the law firm Stibbe.
"But there may also be a risk of overkill, for example, in third party debt situations. Further details of the measures must be awaited before a more comprehensive assessment can be made," he said.
"The new rules will obviously make the Netherlands a very tax efficient jurisdiction to locate group finance companies," said Arnold van der Smeede from Spigthoff, a law firm in Amsterdam.
"Although details of how this will be done exactly are not discussed, it is expected that the corporate income tax burden for many Dutch businesses will decrease, which should lead to an improvement of the attractiveness of the Netherlands as a country to establish a business," said Molenaars.
