Report of advisory committee on taxation of multinationals

The Junior Finance Minister upon the request of the Lower House of the Dutch Parliament having set up an expert committee charged with rendering advice on measures aimed at improving the fairness of the system of taxation of profits generated by multinationals, said committee has now recommended that more data should structurally be gleaned in order to improve the insight into the tax payments made by multinationals, emphasising how important it is that the Netherlands should be at the vanguard where it concerns international collaboration in the area of taxation of earnings. The committee’s capstone has been its proposal of a “basic version” of unilateral measures aimed at broadening the fundamentals of the taxation system.

The committee has stressed to what great extent a fair taxation system hinges on the stability and consistency of tax regulations. It focused its investigations on the following five themes:

• the importance of corporation tax to the business climate;
• the ratio between Dutch corporation tax and the taxation of earnings in other countries;
• the change in corporation tax revenue over time as well as in comparison with other countries;
• the amount in corporation tax paid by multinationals in the Netherlands compared with that paid by other business categories;
• identification of the corporation tax “choke points” that are potential factors in skewing the payment of taxes by multinationals.

The committee has identified international collaboration as the main path towards a properly functioning international tax system of which curbs on tax competition between countries should form part.

Unilateral policy options for the Netherlands

The committee has proposed a “basic version” of recommended measures aimed at broadening the fundamentals of the corporation tax regime. It has wielded the following two objectives in this respect:

• creation of a lower corporation tax limit for businesses that are profitable domestic operators;
• elimination of mismatches between the Netherlands and other countries.

The “basic version” comprises the following measures:

• limitation of set-off of losses from previous years to a maximum of 50 percent of the taxable profit in conjunction with an indefinite loss set-off term;
• limitation of deductibility of shareholder costs to a maximum percentage of the taxable profit;
• limitation of deductibility of royalties to a maximum percentage of the taxable profit;
• limitation of the deductibility of interest and shareholder costs and, where appropriate, royalties collectively to a maximum percentage of the taxable profit;
• enhancement of the efficacy of the existing CFC (Controlled Foreign Company) regulations by taxing distributed profits and bringing the exception for essential economic activities into line;
• refraining from applying the arm’s length principle where this would in principle bring about a reduction of the taxable profit in the Netherlands where the other country involved in the transaction does not involve the adjustment in its fundamentals;
• limitation of the depreciation of assets having been transferred within a group of companies where it concerns undisclosed reserves having been insufficiently taxed at the time the relevant transfer took place.

The committee has moreover proposed the following supplementary measures:

• tightening up the earnings stripping measure by cutting back the deductible interest from 30 to 25 percent of EBITDA;
• limitation of the deductibility of interest relating to the acquisition of participating interests;
• broadening of the limitation of deductibility of interest where it concerns royalty payments and rental payments;
• limitation of the deductibility of intra-group payments across the board where the payments in question have been insufficiently taxed in the recipient country;
• broadening of the existing CFC regulations to include active income;
• introduction of a non-conditional withholding tax on interest and royalties.

Dutch version: Rapport commissie belastingheffing van multinationals