Supplementary explanation on temporary free depreciation 2013
Publication date 16 July 2013
We havealready reported on the amendment to the Implementation Regulation on Free Depreciation 2001. This amendment allows businesses making new business investments between July 1 through December 31, 2013 to apply a one-off write-down of up to half of the acquisition or production costs subject to certain conditions.
Partly in response to questions from the tax practice, an explanation has appeared on the website of the Dutch Tax and Customs Administration, including a number of numerical examples. Although the impact of the new regulation is not yet clear for all situations, the explanation provides greater clarity on how the Dutch Tax and Customs Administration will apply the payment criterion and the convergence of free and ordinary depreciation. We will briefly examine these two aspects below.
Convergence free depreciation 2013 and ordinary depreciation
Contrary to the former rule on temporary free depreciation, this time the choice to freely depreciate can only be made in the financial year the obligation was entered into or the production costs were incurred (summarized below as making investments), with a maximum of 50% of the investment. In the past, investments could be freely depreciated over the duration of their useful life. The examples given by the Dutch Tax and Customs Administration, which assume that a financial year coincides with the calendar year, show that ordinary depreciation in principle also takes place in addition to free depreciation in 2013. The investment is as it were broken down into two parts, one part that is depreciated freely and another part that follows the ordinary depreciation rules.
Free depreciation 2013 and the payment criterion
One of the legal requirements for the application of free depreciation is that the free depreciation on the business asset before it is taken into use cannot exceed the amount paid. The question arises whether this requirement applies in full to this new rule. According to the explanation of the Dutch Tax and Customs Administration, it is certainly the case that the free depreciation is limited to the amount paid if the asset has not yet been taken into use. If, as a result, it is not possible to freely depreciate in a financial year that includes the period from July 1 through December 31, 2013, then there is subsequently no longer any possibility of freely depreciating. It is therefore only possible to freely depreciate in one financial year, this being the financial year in which the investment that took place during the period from July 1 through December 31, 2013 was made. As a consequence,the taking into use or payment must take place within a very short time span, also because the qualifying investment period, unlike in the past, only covers a period of six months. It is therefore important to properly consider the intended taking into use and payment criterion prior to making the investment. This certainly applies in the case of a financial year that differs from a calendar year.