Proposed amendments in the Dutch 2024 Tax Package related to ESG

Content

1. Adjustments to the energy-saving investment credit, the environmental investment credit and the arbitrary depreciation of environmental investments
2. The Industry and Electricity Tax Climate Measures Act (Wet fiscale klimaatmaatregelen industrie en elektriciteit)

Unless indicated otherwise, the proposed measures will enter into force on 1 January 2024, if adopted by the Dutch Parliament.

We refer to our Tax Alert of 20 September 2023 for other proposed measures that – although not directly related to ESG – may be relevant to international businesses and their employees.

(1) Adjustments to the energy-saving investment credit, the environmental investment credit and the arbitrary depreciation of environmental investments

Dutch law provides several specific tax incentives to encourage sustainable investments. The incentives can be divided into two main categories: energy incentives and environmental incentives. A Dutch taxpayer may only apply one incentive per investment. Both incentives have been subject to evaluation resulting in the Dutch Ministry of Finance proposing several amendments to these incentives in the 2024 Tax Plan.

(i) Energy-saving investment credit

Investments in energy-efficient business assets may currently be eligible for an additional energy-saving investment credit of 45.5% (2023 rate) of the invested amount with a cap of EUR 136 million of investments per taxpayer per year and a minimum investment of EUR 2,500 per investment. As a general condition to be eligible for such energy-saving investment credit, the entity claiming the credit must be situated in the Netherlands and be subject to Dutch corporate income tax. Investments (either purchase or production costs) are eligible for the energy-saving investment credit only if they are made with regard to "business assets" that have "not been used before" as a business asset and are listed on the annually updated "Energy List" (under either specific or general codes).

The Dutch government proposed to reduce the energy-saving investment credit to 40% as of 1 January 2024. While it is acknowledged that the proposal may reduce the financial benefit per investment, it would ensure that more entrepreneurs may benefit from the energy-saving investment credit. The Dutch government has furthermore decided to structurally increase the budget of the energy-saving investment credit as of 2025.

In addition, the energy-saving investment credit is subject to a ''sunset clause'', meaning that these incentives have an end date after which they expire. Currently, the energy-saving investment credit may be applied until 1 January 2024. It has now been proposed to extend this period by five years, resulting in the incentives being valid until 1 January 2029.

(ii) Environmental investment credit and arbitrary depreciation of environmental investments

A specific investment deduction, known as the environmental investment credit (milieu-investeringsaftrek) of up to 45% (depending on the type of investment), is available for certain investments in environmental improving assets. The environmental investment credit is subject to similar rules as the energy incentive. Please note that the 2024 Tax Plan does not include adjustments to the rates that apply to the environmental investment credit. However, the Dutch government has decided also to structurally increase the budget of the environmental investment credit as of 2027.

In addition to the environmental investment credit, an arbitrary depreciation of environmental investments (willekeurige afschrijving milieu-investeringen) of up to 75% may be available.

The environmental investment credit and the arbitrary depreciation of environmental investments are also subject to a ''sunset clause''. Currently, the environmental investment credit and the arbitrary depreciation of environmental investments may be applied until 1 January 2024. It has now been proposed to extend these incentives by five years, resulting in the incentives being valid until 1 January 2029.

(2) The Industry and Electricity Tax Climate Measures Act (Wet fiscale klimaatmaatregelen industrie en elektriciteit)

The Climate Act sets the Netherlands the task of achieving a 55% reduction in greenhouse gas emissions by 2030 in relation to the level of greenhouse gas emissions in 1990. In order to achieve this, measures need to be taken in all sectors to reduce greenhouse gas emissions.

One of the measures already taken in 2022 (effective per 1 January 2023) is the minimum carbon price for the emission of greenhouse gasses. The minimum carbon price applies to large industrial companies covered by the European Emissions Trade System (EU ETS), such as the metal industry, waste incineration plants and companies emitting large amounts of nitrous oxide. The minimum carbon price currently consists of a combination of the carbon price that follows from the EU ETS and a national tax.

In order to reduce greenhouse gas emissions even further, the Dutch government proposed – as part of the 2024 Tax Package – in the Industry and Electricity Tax Climate Measures Act (Wet fiscale klimaatmaatregelen industrie en elektriciteit) to increase the minimum carbon price per tonne of CO₂ emissions. The proposed new minimum price is EUR 51.70 per tonne of CO₂ as of 1 January 2024, eventually increasing to EUR 71.10 as of 1 January 2030. The following table shows the current and new rates per year:

The Dutch government may adjust the new minimum carbon price, depending on inflation.

The minimum carbon price per tonne guarantees that the price paid by companies for CO₂ emissions will remain at a certain level, even if the EU ETS price is lower. By introducing this measure, the Dutch government aims to stimulate companies to make their production processes more sustainable.

In addition to the above measure, it has also been proposed to abolish the coal tax exemptions for dual and non-energy use of coal as of 1 January 2028 (including the associated refund schemes) and to abolish the energy tax exemptions for metallurgical and mineralogical processes as of 1 January 2025 (including the associated refund schemes). The last proposed measure is the introduction of an energy tax exemption targeted at hydrogen production by electrolysis.

Next steps

The proposals need to be approved by the Dutch Parliament in order to enter into force. Although elections will take place in November, Parliament indicated that it will nevertheless process the extensive number of proposals. It is scheduled to further discuss the 2024 Tax Package in the course of October and to vote on the legislative proposals at the end of that month. The proposals may be subject to change throughout the legislative procedure. Please bear in mind that the potential impact and implication of the proposals should be assessed carefully on a case-by-case basis.