Monday, July 13, 2009

Netherlands: group interest box

From our friends at Tax Justice Netherlands:

Following our June 16 blog Fiscal fireworks: Dutch announce a 5% rate, we now offer an unofficial, unauthorised translation of a proposed change to the Dutch corporate income tax regulations (it is here.)

This concerns the optional Group Interest Box which was introduced in 2007. As very brief background: a detailed report from our colleagues at Somo said that year:

"From 2007 it is possible that the Netherlands will be offering tax rates as low as 5% on interest income under the ‘group interest box’ in the current “Werken aan Winst” proposal for modifying tax legislation . . . this might mean that the Netherlands will be offering the lowest tax rates on financial flows in the developed world."

Yet this proposal never entered into force pending formal approval from the European Commission. The new proposals make the Group Interest Box compulsory, thus apparently avoiding a European Commission challenge to the regime as unlawful state aid under EU law. The news is that on 8 July 2009 the Commission endorsed the group interest box scheme. From its press release it appears the Commission has already taken some of the proposed measures into account.

“Initially, the measure notified was optional for a period of at least three years. Following discussions with the Commission, the Dutch authorities undertook to make the measure compulsory for all entities subject to corporate income tax in The Netherlands. The Dutch authorities also undertook to enlarge the definition of a group for the application of the measure to take account of situations where one entity has, directly or indirectly, effective control over the financing of the other entity, or where a third party has effective control over the financing of the two entities involved in the loan arrangement. In addition, the Dutch authorities announced their intention to remove the existing statutory €18,000 capital requirement for the creation of limited liability company.”


So, after introduction of the compulsory group interest box, interest received from group companies would be taxed at 5%, while paid group interest would also be deductible at a rate of 5%.

All stakeholders and interested parties are invited to comment on the proposals. Tax Justice Netherlands in particular encourages developing countries, especially those with tax treaties with The Netherlands, to respond. Comments can be submitted prior to 1 August 2009, directly to the Dutch Ministry of Finance by e-mail - vpb (at) minfin.nl . Reactions will not be published.

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