Change to the 30% ruling

Employees who come to work in the Netherlands from abroad can receive up to 30% of their taxable salary as untaxed remuneration. From 1 January 2024, the 30% ruling will be subject to a cap equal to the standard specified in the Executives’ Pay (Standards) Act (Wet Normering Topinkomens). This ‘WNT’ standard is better known as the ‘Balkenende norm’ and amounts to €216,000 in 2022. The change means that the 30% ruling may be applied up to the maximum WNT standard, which equates to an untaxed remuneration component of €64,800. In the case of lower salaries, the full 30% can still be paid as untaxed remuneration if the minimum salary requirement is met. If this extra allowance does not adequately cover the extraterritorial expenses, the employee can still receive an untaxed reimbursement of the extraterritorial expenses actually incurred, which is not subject to a cap, instead of the 30% ruling.

The amount specified as the WNT standard is expected to be higher in 2024 because this amount is linked to the development in contractual remuneration paid in the public sector.

In addition, it is proposed that a choice can be made each calendar year between reimbursement of extraterritorial expenses based on expense claims, or the untaxed remuneration component under the 30% ruling. Reimbursing extraterritorial expenses based on the 30% ruling lessens the administrative burden.

Transitional arrangement

For employees for whom the 30% ruling has already been applied over the last pay period of 2022, the proposed transitional arrangement means that the 30% ruling cannot be capped until 1 January 2026.

In the case of employees who use the 30% ruling for the first time as of 1 January 2023, it is already obvious that the cap on the maximum amount may apply in their case as of 1 January 2024, so they will not be able to invoke the transitional arrangement.

Measures against tax avoidance

Minimum rate for profit tax (pillar 2)

The European Commission has released a proposed Directive for an effective minimum tax rate for multinationals of 15%. The proposal applies to EU-based group entities or parts thereof with a revenue of at least €750 million.

The proposal consists of two parts:

- Income inclusion rule (IIR). The country where the parent company is domiciled must levy top-up tax if the profits earned abroad are taxed below the minimum rate.

- Undertaxed payments rule (UTPR). If the country where the parent company is domiciled does not levy (top-up) tax sufficiently, other countries may collect top-up tax under the UTPR. This prevents circumvention of the UTPR by establishing the parent company in a country that does not apply the UTPR.

The proposal is to adopt 1 January 2023 as the implementation date, with the UTPR taking effect on 1 January 2024. At present, however, not all member states agree, which may delay the proposal.

Provision of data by platform operators (DAC 7)

Platform operators will be subject to an overall reporting requirement based on the recent DAC 7 Directive. Platform operators must report how much revenue registered users, i.e. businesses and individuals, have earned through the platform to the Tax and Customs Administration. The revenues in question result from the sale of goods and services and property rentals. The reporting requirement applies to EU residents and platform operators engaged in a commercial activity in the EU. This involves platform operators that are not tax residents of an EU member state and are not incorporated under the laws of an EU member state and do not have their place of management or a permanent establishment in an EU member state (i.e. foreign platform operators).

The Netherlands must adopt the provisions to comply with the Directive by 31 December 2022. The provisions come into effect on 1 January 2023.

Change to dividend tax

There are a number of changes that affect dividend tax.

- At the request of the withholding agent, the inspector may determine the paid-up capital by an individual decision that is subject to objection. This was previously only possible for a limited liability company (Dutch BV) or public limited company (Dutch NV). This is being extended to apply to other companies.

- Use of the term ‘rechtspersoon’, i.e. legal person, in the provision against dividend stripping can be restrictive in practice. For example, it does not have the intended effect in relation to an unincorporated non-transparent company. For this reason, it is proposed to replace the term ‘rechtspersoon’ (legal person) with ‘lichaam’ (company).

- Dividend tax is levied on the proceeds of shares and profit certificates. Payments for capital provisions, however, are not explicitly mentioned as a tax object in the dividend tax law. As a result, there is a difference between the dividend tax and the corporate income tax. In the context of corporate income tax, those payments are non-deductible. The proposal aims to rectify this situation. So what if a payment is deemed non-deductible, due to the nature of the capital, when determining income for corporate income tax purposes? In that case, according to the Dutch government, levying dividend tax is justified.

Withholding tax on dividend

Effective from 1 January 2024, an additional withholding tax on dividends to low-tax jurisdictions and for use in situations of abuse will be introduced. This tax follows the model of the withholding tax on interest and royalty payments that has been in effect since 1 January 2021. The additional measures cover two situations.

1. If a dividend payment is made, in the context of a group, to an entity established in a low-tax country with which the Netherlands has a tax treaty. The dividend tax withholding exemption can usually be invoked here, which means that no dividend tax is levied. In this case, a withholding tax will be applied in relation to the dividend. 
2. If a dividend payment is made by a non-holding cooperative to an entity resident in a low-tax country. In this situation, no dividend tax is levied because non-holding cooperatives are not liable to withhold dividend tax. In this case also, a withholding tax is levied on the dividend. To prevent concurrence of withholding tax and dividend tax, there will be a concurrence rule for those cases where a dividend is subject to both the dividend tax and the proposed withholding tax. The withholding tax is reduced in that case.

The legislative bill has been approved by both the Dutch Lower House and the Upper House and will come into effect on 1 January 2024.

Public country-by-country reporting

Based on a recent EU Directive, public disclosure (public country-by-country reporting) of profit tax information will be introduced. Multinationals whose consolidated group income, or the income of the stand-alone company, exceeds €750 million over two consecutive fiscal years must disclose how much profit tax they pay in each EU country.

The profit tax information report must include a list of all subsidiaries, with respect to the relevant fiscal year, located in the EU or countries on the EU list of jurisdictions that are not non-cooperative for tax purposes. The report must also provide information on all activities of the affiliates of the group, consolidated in the financial statements of the ultimate parent company, or, depending on the circumstances, on all activities of the stand-alone company. The obligation to publish primarily applies to the ultimate parent company. What if a group conducts activities within the EU exclusively through subsidiaries or branch offices? In that case, those subsidiaries and branch offices must make the ultimate parent company's report public and accessible.

The Netherlands must bring into effect the laws, regulations and administrative provisions necessary to comply with the Directive by 22 June 2023. The provisions will then apply no later than the commencement date of the first fiscal year starting on or after 22 June 2024. A legislative bill has now been submitted to the Lower House.

Do you require more information?

Would you like more detailed information about the main changes on the international front? Our tax advisors would be happy to assist you. Please contact Daniël van Meijgaarden, senior tax advisor, on telephone number +31 165531348 or send Daniël an e-mail.