Tax Alert: New Dutch government announces tax measures

Tax measures

Improving the business environment in the Netherlands is one of the pillars of the plans published by the new Dutch government. As a result hereof, certain recent tax increases for entrepreneurs, increases in the energy tax and increases in the personal income tax on capital in the Netherlands that have been announced on Budget Day 2023 (Prinsjesdag) will be partly reversed. In the below, we will shortly address the most important tax measures:

• Parliament decided last year that a share redemption by a listed company would become subject to Dutch dividend withholding tax (''DWT'') starting in 2025, while under current law listed companies can rely on a specific redemption facility, deviating from the main rule that share redemptions are subject to Dutch DWT. The current facility allows a Dutch listed company to redeem shares free of DWT if certain conditions are met. These conditions include a cap according to which the total amount in share redemptions in any one calendar year may not exceed (i) twenty times the average amount of cash dividends in the five preceding calendar years, less (ii) the amount paid on share buybacks in the four preceding calendar years. It is now announced that the measure to abolish the tax relief for the redemption of shares will be reversed. Given that the abolishment of the tax relief for the redemption of shares will be reversed, share redemptions will still be an attractive way for both companies and its shareholders to (i) enhance earnings per share; (ii) lower excess equity; (iii) reshape the capital structure; and (iv) return excess cash to shareholders. 
• The earnings stripping rule that limits the deductibility of 'excess' net interest paid to related and unrelated parties by a Dutch taxpayer will be amended. Pursuant to the earnings stripping rule as currently in place, net interest costs are only deductible up to the higher of (i) 20% of the taxpayer's earnings before interest, tax, depreciation and amortisation (EBITDA) or (ii) a threshold of EUR 1 million. It is currently envisaged that the earnings stripping rule will be increased from 20% to 25%. 
• The measure to increase the Energy Tax rate as of 2025 (22.4%) and an extra 2.7% as of 2030 will be reversed. 
• It will be considered whether and, if so, which tax benefits under the extraterritorial expenses scheme (which includes the so-called 30% payroll tax facility) will be limited. 
• The measure to increase the so-called Box 2 rate in the Personal Income Tax Act from 31% to 33% will be reversed as of 2025. As a result thereof, the Box 2 rate will be 31% in 2025. 
• The rate applicable to the regime for income from savings and investments (i.e. the so-called Box 3 rate) will be reduced. It is currently not yet clear to which percentage it will be lowered (the 2024 rate is 36%), however a structural amount of EUR 100 million will be made available to pay for this reduction. 
• Lastly, and as a more general measure, further steps will be taken during the government's term in office to phase out (negatively assessed) tax schemes and tackle unintended structures in order to increase the efficiency of the tax system and further simplify the system. The starting point for negatively assessed tax schemes is that they will be abolished, or will be limited. It is not yet clear which tax schemes or unintended structures will be tackled.

Conclusion

Although the agreement that was published by the new Dutch government on May 16 only provides a direction for the tax plans of the new Dutch government and given that the actual legislative proposals are not yet published and need to be approved by Dutch parliament in order to enter into force, the agreement and Dutch tax measures therein should be closely monitored and the impact thereof should already be assessed carefully on a case-by-case basis.