Tax measures for 2014

Publication date 18 September 2013

On Budget Day, September 17, 2013, the Cabinet presented the Tax Plan 2014 to the Lower House. The Tax Plan 2014 contains the following bills:

  • The Tax Plan itself
  • Other tax measures 2014
  • The Act on Combating Allowances and Tax Fraud
  • The Act to Amend Interest on Tax Due and Late Payment Interest.

This year’s proposed tax measures are dominated by the combating of fraud and sustainable income measures. Many of these measures will take effect on January 1, 2014. Below, we address the main features of the Tax Plan 2014.

Corporate income tax

Relaxation of permissible activities for fiscal investment institutions
Under current legislation, fiscal investment institutions (fiscale beleggingsinstellingen; “FBIs”) are limited in the type of ancillary activities they can perform in respect of the services they provide as a lessor of real estate. However, lessees and investors are increasingly expecting lessors of commercial real estate to take a more pro-active approach in respect of the development and management of their investment portfolio. It has been proposed that FBIs be given the opportunity ? albeit indirectly ? to perform ancillary activities directly related to holding and leasing real estate without losing their FBI status. Ancillary activities could include, for example, providing certain general and technical services to lessees, such as cleaning and catering.

The performance of these activities is conditional on them being carried out by a ‘normal’ taxpaying subsidiary of the FBI and a number of additional conditions must be met. For example, the tax value of the shares in the taxpaying subsidiary must not exceed 15% of the FBI’s equity for tax purposes. Secondly, the turnover from the ancillary activities must not exceed 25% of the turnover (such as leasing income) derived from investing in the investment property for which the ancillary services are performed. This limit applies to each separate investment property. To avoid the taxpaying subsidiary’s profit being eroded and the value of the shares in that entity being kept low due to the fact that it is excessively debt-financed, the relevant company must be fully financed by equity. To this end, normal customer and supplier credit is not regarded as debt.

Payroll tax and social security contributions

Extension of the employer’s levy on top salaries (the crisis levy)
A one-off employer’s levy was introduced in 2013. The 16% tax is levied on salaries that exceeded EUR 150,000 in 2012. The one-off crisis levy will be extended once only in 2014 and will therefore also be payable in 2014 on salaries that exceed EUR 150,000 in 2013.

Abolition of annuity exemption, cuts to payouts in 2014
As of January 1, 2014, the annuity exemption will be abolished. It will then no longer be possible to use a life insurance policy, an annuity savings account or an annuity investment account to spread the payout of the income received from a golden handshake. Redundancy packages will be lump sum payments and immediately taxed at the progressive rate. On January 1, 2014, the requirement that existing annuity entitlements must be paid out in installments will no longer apply (‘unlocking’; ontklemming): lump sum payments will be possible with no deemed interest being levied. Moreover, only 80% of a lump sum payment will be taxed if it is paid out in 2014. This applies regardless of where the annuity was deposited (self-administered at the former employer, at a bank, an investment institution, an insurance company or in an own annuity private limited liability company (stamrecht-bv).

VAT

Abolition of VAT on self-supply
VAT on self-supply applies where a VAT taxable person constructs movable/immovable property or provides the materials, such as land, for the purposes of construction, and uses it to provide VAT exempt goods or services. As of January 1, 2014, the VAT on self-supply will be abolished. The reason given for its abolition has to do with the problems being experienced on the housing market.

Personal income tax

No indexation of tax brackets and tax credits
As a rule, the tax brackets and tax credits are inflation-adjusted annually. By dispensing with indexation in 2014, incomes will sooner be included in a higher tax bracket.

Increase in general tax credit with reduction in second and third tax brackets
The general tax credit will be increased by EUR 99. However, a 2% reduction will apply from the beginning of the second tax bracket until the end of the third tax bracket. As of 2015, the upper limit of the reduction will be canceled, so that the general tax credit will also be reduced in the fourth tax bracket until it reaches zero. In 2015 and 2016, the general tax credit will be increased further, but so will the reduction percentage.

Employee tax credit increased, gradual reduction for top incomes
The employee tax credit will be increased by EUR 374 and be more income-related. It will gradually be reduced for income amounting to at least 225% of the statutory minimum wage. As of 2017, income amounting to approximately EUR 110,000 will receive a zero employee tax credit.

Periodic donations may also take place by way of a non-notarial deed
Periodic donations of fixed amounts made on a regular basis to approved charities during a period of five years or longer can be deducted from your income. These donations were subject to the condition that they were laid down in a notarial deed. However, as of January 1, 2014, this condition will no longer apply, and it will be possible to have these donations laid down in a non-notarial deed. The Dutch Tax and Customs Administration will make a non-notarial gift agreement available that meets all requirements.

Revision of option rule for foreign taxpayers (2015)
The option rule for foreign taxpayers will be revised. Under the current rule, certain foreign taxpayers can opt to apply the Personal Income Tax Act 2001 as it applies to domestic taxpayers. As of January 1, 2015, the option rule will be abolished. Under the new rules, the personal and family situation of foreign taxpayers may receive the same tax treatment as that of domestic taxpayers. This will bring the scope of the current rules more in line with EU law. The new rules will, in principle, be restricted to foreign taxpayers who are residents of an EU or EEA Member State, Switzerland, or one of the BES islands, and who earn 90% or more of their income in the Netherlands. The current rule is based on the taxpayer’s worldwide income, for which double taxation relief is given. However, under the new rules, qualifying foreign taxpayers will only be taxed on their Dutch income, and are, in principle, entitled to the same deductions and tax credits as domestic taxpayers. The new rules are therefore a greatly simplified version of the current rule. Before the new rules take effect the matter of how the abolition of the option rule will affect migrating foreign taxpayers will be looked into.

Inheritance and gift tax

Gift tax exemption for homes increased to EUR 100,000
The one-off increased gift tax exemption for parents who gift children between 18 and 40 years of age a monetary amount to purchase their own home or to pay the costs of renovating or maintaining that home, or in respect of the buyout of ground rent, superficies, or perpetual hereditary fixed-rent lease with regard to that home, or for the repayment of a mortgage will be relaxed. The exemption will be temporarily increased to EUR 100,000 (was EUR 51,407) during the period October 1, 2013, until January 1, 2015. The condition that the parent can only gift a child between the ages of 18 and 40 will not apply during this period. As such, everyone ? i.e. a family member or a third party ? can receive a gift of no more than EUR 100,000 during this period, provided it is used for their own home. Finally, as of October 1, 2013, the existing exemption will be extended to include gifts that will be used to repay residual mortgage debt. The latter is a permanent measure.

Valuation of serviced apartments
An imbalance in the Inheritance Tax Act in respect of the valuation of serviced apartments will be corrected. Since 2010, homes have been valued based on their WOZ value. In short, this is the value attributed to the real estate if the full and unencumbered ownership thereof could be transferred. Serviced apartments often include a personal obligation to pay service costs in respect of the services relating to the dwelling itself, in exchange for which personal services are provided (for example, meals, hairdressing, or an alarm service). This obligation often decreases the apartment’s fair market value, but not its WOZ value. It has now been proposed that a beneficiary may take account of the fair market value of the serviced apartment, if there is a significant difference between this value and the WOZ value as a result of the personal obligation. An approval/concession for the period 2010 through 2013 has already been given and laid down in policy decrees.

The Legal Transactions Taxation Act (Wet op belastingen van rechtsverkeer)

From real estate entity to real estate legal entity
The proposed changes are intended to remove any uncertainty that has arisen as a result of the judgment rendered by the Supreme Court in 2004 on the levying of real estate transfer tax on the acquisition of a direct or an indirect interest in real estate. In that judgment, the Supreme Court ruled that the acquisition of participations in a partnership without a legal personality ? that meets the criteria for qualifying as a real estate entity (onroerendezaaklichaam; “OZL”) ? must be regarded as an acquisition of participations in an OZL. This means that tax is only due if the acquisition of the participations represents an interest of one-third or more. As a result of this judgment, the regime that applies to the acquisition of the direct economic ownership of real estate or rights to which the real estate is subject, by way of participations in partnerships that can be regarded as OZLs, is more favorable than that applying to partnerships that are not regarded as OZLs. Real estate transfer tax is, in principle, always payable on the acquisition of participations in the latter companies, because this involves the direct acquisition of the economic ownership of real estate. With regard to the acquisition of participations in partnerships regarded as OZLs, real estate transfer tax is only payable if this involves at least a one-third interest.

The bill retains the explicit distinction between the direct (economic) acquisition of real estate or rights to which this real estate is subject, and the indirect acquisition thereof by way of shares in an OZL. On the one hand, the basic assumption that the acquisition of  a participation in a partnership that holds the economic ownership is taxed at the level of the acquirer of the participation, regardless of the size of the interest, remains intact. On the other hand, the rules on interests in an OZL have been limited to interests in legal entities. Consequently, the term ‘real estate entity’ will be replaced by ‘real estate legal entity’.

An exception has been made for interests of less than one-third in investment funds or funds for collective investment in transferable securities: they will fall outside the scope of the real estate transfer tax, and no distinction will be made between open-end and closed-end funds. Investment funds and funds for collective investment in transferable securities are as referred to in the Financial Supervision Act, and are funds geared toward private or institutional investors. The rationale for not taxing interests of less than one-third in both open-end and closed-end investment funds or funds for the collective investment of transferable securities is that the investor who invests in these situations usually does not do so with the intention of acquiring the control of the real estate, or a part thereof.

Tax innovation rules (including various amendments to the EIA, MIA and VAMIL)

RDA
The research and development deduction (research- & developmentaftrek; “RDA”) was introduced in 2012 to grant taxpayers with an R&D certificate (S&O-verklaring) an additional deduction for qualifying innovation costs (payroll costs excepted) and expenses. The percentage applying in 2013 is 54%. The Tax Plan 2014 provides for a EUR 138 million reduction in the RDA budget, while at the same time permanently transferring EUR 60 million to the budget for the R&D remittance reduction. The RDA budget for 2014 will therefore be EUR 320 million. This budget will enable the provisional percentage for the RDA to be approximately 60% in 2014. However, this percentage may have to be adjusted on the basis of developments in 2013 (the final percentage will be set at the end of 2013).

R&D remittance deduction
The remittance reduction for payroll tax purposes for research and development activities (S&O-afdrachtvermindering; also referred to as the “WBSO”) is a tax measure similar to the RDA and is intended to encourage innovation by private parties by providing tax relief for the payroll costs related to research and development.

With regard to the R&D remittance reduction, the Cabinet has proposed extending the first bracket to EUR 250,000 (was EUR 200,000), which will mean that the higher rate for the R&D remittance reduction will apply to a larger part of the payroll costs for research and development. The Cabinet hopes that this will give small and medium-sized businesses in particular the opportunity to grow. The tax rate for the first bracket will be decreased from 38% to 35%. The budget for 2014 for the R&D remittance reduction is EUR 756 million.

To lessen the administrative burden, the Cabinet has proposed allowing R&D withholding agents to request an R&D certificate for a period longer than six months but no more than one full calendar year. At present, only those R&D withholding agents that have a research or development department and that have also been granted an R&D certificate in the preceding calendar year can request a R&D certificate that is valid for one year.

Moreover, the Cabinet has also proposed allowing withholding agents to set off the R&D remittance reduction, which cannot be redeemed in the period to which the R&D certificate applies, in other tax return periods that end in the calendar year for which the R&D certificate is valid.

EIA/MIA/VAMIL
A permanent cut of EUR 10 million per scheme will be introduced in 2014 in respect of the energy investment deduction (energie-investeringsaftrek; “EIA”), the environmental investment deduction (milieu-investeringsaftrek; “MIA”) and the free depreciation of environmental investments (willekeurige afschrijving milieu-investeringen; “VAMIL”). The Cabinet will look into possibilities for integrating the MIA and the VAMIL. All three schemes must be evaluated before January 1, 2019. Based on these evaluations it will be decided whether or not to continue with the schemes as of that date.

The Cabinet has also proposed opening up the MIA to commercial lessors of residential accommodation for activities such as asbestos removal, whether or not in combination with the installation of solar panels.

In order to reduce the administrative costs of registering with Agentschap NL, the threshold amount for the EIA, MIA and VAMIL will be increased to EUR 2,500.

Separated Private Assets (Afgezonderd particulier vermogen)

The contributor of capital in separated private assets (“APV”) seeks to represent mainly individual interests on a more than incidental basis. Under these circumstances, the assets in question are allocated to the contributor or their beneficiaries (transparency for tax purposes), unless the APV is resident in a country that taxes the profits from the APV at 10% or more (fair tax). The Ministry of Finance has indicated that APVs are used to avoid paying tax on the profit on substantial interest earnings. This is achieved by first bringing the shares into an APV (no disposal for substantial interest purposes) and then establishing the APV in a country with a fair tax regime according to Dutch standards. The Ministry believes that such a set-up does not work. In order to obtain complete assurance, it is proposed amending the legislation.

The Ministry has also identified unauthorized use in the field of corporate income tax: the APV could be used to thwart interest deduction limitations that are designed to counter base erosion. Something will be done about this too. The interest deduction limitations can continue to be applied under certain circumstances, also if an APV is included in profit tax that results in a fair tax according to Dutch standards.

Cars

Tax on motor vehicles and classic cars
From January 1, 2014, only motor vehicles that are 40 years and older will be exempt from tax on motor vehicles (motorrijtuigenbelasting; “MRB”). In addition, transitional rules will apply to petrol-driven passenger cars and vans, motorcycles, buses and trucks that were between 26 and 40 years old on January 1, 2014.

MRB and foreign license plates
In recent years, there has been a substantial increase in the use of motor vehicles with a foreign license plate by Dutch residents in order to avoid the payment of tax on motor vehicles. To combat this, a presumption of residence will be introduced in the Motor Vehicle Tax Act (Wet op de motorrijtuigenbelasting). This means that an individual is deemed to be resident in the Netherlands for the MRB if he is registered or should have been registered in the Municipal Personal Records Database (gemeentelijke basisadministratie; “GBA”). Rebuttal evidence is possible. In addition, a fiction is proposed with respect to the tax payable and the commencement of the liability for tax, i.e. the date on which the holder has registered or should have registered in the GBA, and this fiction will also have the possibility of rebuttal evidence. The measures will be combined with intensified road checks.

Increased excise duty on diesel and LPG
The excise duty on diesel will be increased by 3 cents per liter and the excise duty on LPG by 7 cents per liter.

Procedural law amendments

Tax due and late payment interest rate change
The rules on interest on tax due came into effect on January 1, 2013. The applicable interest rate is the statutory interest rate for non-commercial transactions. It is now proposed that the rate for interest on tax due in respect of corporate income tax be set at the statutory interest rate for commercial transactions with a minimum of 8%. The interest on tax due and late payment interest with respect to other taxes remains at the rate for non-commercial transactions, but subject to a minimum of 4%. These rates will apply to interest periods after March 31, 2014.

International exchange of information
If the Dutch Tax and Customs Administration provides information to foreign tax authorities upon request or on its own initiative, the person from whom the information originates will be notified about this. The information will only be given to the relevant tax authority ten days after such notification. During that period, the exchange may be suspended by means of a preliminary injunction procedure. This notification procedure will be abolished on January 1, 2014 for requests for information after that date. The same change will apply to the BES islands.

Combating allowances and tax fraud
The large-scale fraud with allowances has led to a number of proposals to improve the combating of such fraud. Most of the measures relate to the Dutch Tax and Customs Administration/Allowances. The following measures are proposed with respect to taxation:

  • New penalty provision for making an incorrect application for a provisional refund or an incorrect revision request
    From January 1, 2014, the deliberate filing of an incorrect request for the revision of a provisional personal income tax or corporate income tax assessment will constitute a punishable offense. This also applies to the intentional filing of an incorrect request for a provisional personal income tax refund. The maximum penalty will be equal to the amount of the incorrectly refunded or unpaid tax as a result of the incorrect information.
  • New criminal provision concerning the deliberate non-payment of remittance-based taxes
    From January 1, 2014, it will be possible for taxpayers to face criminal prosecution if they have filed the correct returns for remittance-based taxes, such as for VAT or payroll tax, but deliberately do not pay the tax. At the moment, a tax penalty may be imposed but no criminal prosecution will be pursued.

Collection measures

  • It will no longer be possible to dispose of or pledge receivables from the Dutch Tax and Customs Administration for the payment of income tax.
  • Tightening of the liability provision

The recipients’ liability for those doing business with non-certified agencies that hire out staff will be tightened. Non-certified agencies wil