FS Tax Newsletter | February 2021
Dear FS Professional,
We hope you had a great start to 2021. After wrapping up the first month of the year, in this edition of the Financial Services Tax Newsletter we would like to summarize the relevant developments that took place in December 2020 and January 2021.
A lot has happened these past two months: the Upper House of Parliament adopted the 2021 Tax Plan package and the bill on the Liquidation and Cessation Loss Schemes Limitation Act. We will discuss this and also the implications of the newly announced loss set-off rules for accounting purposes.
As for VAT developments, the Dutch Supreme Court rendered judgments in two important cases on the interpretation of the VAT exemption for collective asset management. The Deputy Minister of Finance also published a new Decree in which he formalized and expanded on his policy on the VAT treatment of permanent establishments. We have included an updated memorandum on the VAT Deduction Exclusion Decree for the final Dutch VAT return of 2020.
This newsletter also looks at the Decree of December 2020, under which non-resident entities could be entitled to a refund of Dutch dividend withholding tax based on the CJEU Sofina judgment. Lastly we elaborate on the reappraisal of the relief and recovery package for the economy and labor market.
For other tax-related issues not included in this FS Tax Newsletter, please visit our website.
If you would like to know more about the matters addressed in this newsletter please contact us.
Niels Groothuizen, Partner, Financial Services Tax Group
Table of Contents
- 1. Upper House of Parliament adopts 2021 Tax Plan package and bill on the Liquidation and Cessation Loss Schemes Limitation Act
- 2. New loss set-off rules not substantially enacted for IFRS and US GAAP purposes
- 3. Supreme Court interprets VAT exemption for collective asset management in broad terms: management of individual assets via investment profiles is exempt
- 4. Final Dutch VAT return of 2020: adjustments under the VAT Deduction Exclusion Decree and the private use of company cars
- 5. New policy statement on VAT fixed establishments
- 6. Refund of Dutch dividend withholding tax based on Sofina judgment
- 7. Relief and recovery package for the economy and labor market reappraised
1. Upper House of Parliament adopts 2021 Tax Plan package and bill on the Liquidation and Cessation Loss Schemes Limitation Act
On December 15, 2020 the Upper House of Parliament adopted the 2021 Tax Plan package and the bill on the Liquidation and Cessation Loss Schemes Limitation Act. The Lower House of Parliament had already adopted these bills on November 12, 2020 (see our previous memorandum).
Please find an overview of our 2021 Tax Plan reporting through this link or contact Paul te Boekhorst or Bauco Suvaal.
2. New loss set-off rules not substantially enacted for IFRS and US GAAP purposes
The Tax Plan 2021 has been substantially enacted on December 15, 2020 (for IFRS, and enacted on December 23, 2020 for US GAAP), based on which in principle the effect of the law changes of the Tax Plan 2021 should be reflected in the tax position in financial statements with a yearend as of that date. For example, this entails that the CIT rate of 25% should be used for determining the measurement of deferred taxes in financial statements with a December 31 yearend.
However, it is relevant to know that the change in the tax loss carry-forward rules (unlimited loss carry-forward, but offset only possible for EUR 1 million + 50% of taxable profit that exceeds EUR 1 million) is not (substantially) enacted per yearend December 31, 2020.
This is due to that although it is envisaged that the new rules will enter into force as per January 1, 2022, it has been stated in the Tax Plan 2021 that the entry into force of these rules will be determined by publication of a Royal Decree. The publication of the Royal Decree depends on the outcome of an implementation test of the new rules. Hence, the Big-4 firms consulted with the AFM and concluded that the new tax loss carry-forward rules are not yet (substantially) enacted until the publication of the Royal Decree. Consequently, the new tax loss carry-forward rules cannot yet be taken into account when determining the deferred tax asset for tax losses available for carry-forward as per yearend December 31, 2020. Instead, the current loss carry-forward rules (6-year loss carry forward, with transitional rules for the 9-year period for losses prior to 2019) need to be taken into account.
For more information on this matter, please contact Jan Moret or Eveline Gerrits.
3. Supreme Court interprets VAT exemption for collective asset management in broad terms: management of individual assets via investment profiles is exempt
On December 4, 2020 the Supreme Court rendered judgments in two important asset management cases. The main question in both cases was whether the VAT exemption for collective asset management can also apply to individual asset management whereby investments are pooled on the basis of investment profiles.
Both the Amsterdam and the Arnhem-Leeuwarden Courts of Appeal had ruled in these two cases that the exemption applied. Unlike in the Opinions issued by Advocate General Ettema, the Supreme Court confirmed the application of the VAT exemption. The Supreme Court qualified the assets invested in investment profiles as a special investment fund, because the manner in which the assets are pooled and invested is comparable to an undertaking for collective investment in transferable securities (UCITS). The fund is also subject to specific state supervision, because the manager is obliged to have a license and is under the supervision of the Netherlands Authority for the Financial Markets (AFM).
The ruling by the Supreme Court is extremely important for the entire asset management market. It is particularly important that asset managers examine whether for various clients there is indeed a special investment fund. There may be more scope to apply the VAT exemption for collective asset management, which may be to the client’s advantage. In addition, the ruling by the Supreme Court is important for parties that purchase asset management services from abroad on which they currently report and pay reverse-charged VAT, that is not or hardly recoverable.
It is important to determine as quickly as possible whether there is scope to apply the VAT exemption for collective asset management. If that is the case, then we recommend that, where possible, you submit a notice of objection against the payment of VAT soon.
For more information on this matter please follow this link or contact Gert-Jan van Norden, Irene Reiniers or Jochum Zutt.
4. Final Dutch VAT return of 2020: adjustments under the VAT Deduction Exclusion Decree and the private use of company cars
The final VAT return for the financial year (for most businesses the Q4 2020 or December 2020 return) must include adjustments under the VAT Deduction Exclusion Decree (‘DED’) and for the private use of company cars. Our memorandum provides an up-to-date explanation of how the adjustment affects the recovery of VAT on staff benefits, promotional gifts and other gifts. The memorandum incorporates the latest developments in this area. We have also included a flowchart which sets out the steps for preparing the DED calculation. We also explain the effect of the VAT adjustment for the private use of company cars.
For the full memorandum on this matter, please follow this link or contact Leo Mobach or Marieke Herber.
5. New policy statement on VAT fixed establishments
On December 18, 2020 the Deputy Minister of Finance (‘Deputy Minister’) published a new policy statement on VAT fixed establishments. The policy statement is relevant for internationally operating businesses with one or more fixed establishments.
The policy statement, among other things, lays down the Dutch viewpoint on the concept of a fixed establishment and the VAT treatment of transactions between a head office and a fixed establishment. As far as the scope of the fixed establishment concept is concerned, the Deputy Minister has sought to align the policy statement as much as possible with the EU VAT Implementing Regulation and case law by the Court of Justice of the European Union (‘CJEU’) and the Dutch Supreme Court.
The policy statement additionally contains the welcome confirmation that the CJEU Skandia judgment (case no. C-7/13) does not have any implications for the Netherlands. That is also the position taken in practice and had previously been mentioned by the Ministry of Finance. As such, the basic assumption continues to be that if there is a VAT group in the Netherlands, the foreign fixed establishments and head offices of Dutch members of the VAT group also belong to the Dutch VAT group (being one taxpayer) and transactions between the head office and fixed establishments in principle fall outside the scope of Dutch VAT.
The most important change compared to the previous policy statement from 2003 is the update of the guidelines on VAT recovery. Compared to the policy statement from 2003, the new policy statement makes even more clear that in determining the VAT recovery right, alignment must be sought with the transactions to which the costs are attributable. These can be transactions by the fixed establishment and/or the foreign head office.
For more information on this policy statement please follow this link or contact Gert-Jan van Norden or Nienke van den Blink.
6. Refund of Dutch dividend withholding tax based on Sofina judgment
On December 4, 2020, the Deputy Minister of Finance published a decree containing the conditions for refunding Dutch dividend withholding tax to foreign entities in line with the CJEU decision in the Sofina case.
The CJEU decision in the Sofina case established that the free movement of capital was violated when a loss-making French entity was released from its obligation to pay domestic dividend withholding tax until it became profitable again, despite the fact that a foreign loss-making entity was unable to credit this dividend withholding tax, rendering the source taxation a final levy.
This Decree potentially provides a meaningful option to foreign entities that have not been able to otherwise obtain relief for Dutch dividend withholding tax through either a reduced treaty tax rate or an exemption. It is especially relevant for foreign entities that have received Dutch portfolio dividends and have been or will likely be in a loss-making position or have had a low tax base for several years. In such cases, the withheld dividend withholding tax would have probably exceeded the corporate income tax payable had the entity been established in the Netherlands.
For more information on this matter please follow this link or contact Jeroen Bruggeman or Erwin Nijkeuter.
7. Relief and recovery package for the economy and labor market reappraised
On December 14 it was announced that the existing relief and recovery package for the economy and labor market would be amended and some elements expanded. On January 21, 2021 in a letter sent to the Lower House of Parliament the government announced that the current relief and recovery package for the economy and labor market would again be expanded. Both amendments are related to the continuing impact of the coronavirus on the economy, which is in a recession, also with regard to the Netherlands.
The government has decided not to phase out the NOW (Temporary emergency bridging measure to retain jobs; Tijdelijke noodmaatregel overbrugging voor behoud van werkgelegenheid) and the TVL (Overhead Compensation SMEs; Tegemoetkoming Vaste Lasten mkb) in the first quarter of 2021 compared to the fourth quarter of 2020. In its letter of January 21, 2021 the government announced that the TVL would be significantly expanded.
The government is extending the period during which and for which businesses can apply for a deferral of payment of taxes or an extension thereof until July 1, 2021. Furthermore, the following measures have been extended until July 1, 2021:
- the deferral of administrative obligations with regard to payroll tax and social security contributions;
- the agreement with Germany and Belgium concerning the taxation of frontier workers;
- the exemption for a number of German net benefits;
- the zero VAT rate on face masks;
- the zero VAT rate on the outsourcing of healthcare workers;
- the zero VAT rate on COVID-19 vaccines and testing kits; and
- the retention of the right of homeowners to claim the mortgage interest deduction if they obtain a mortgage repayment break from their mortgage lender.
The TVL had already been extended with three periods of three months as of October 1, 2020, with the maximum subsidy being increased to EUR 90,000 per period (see our memorandum of September 2, 2020). At the beginning of December 2020 it was announced that the proposed increase of the minimum lost turnover percentage for the second period would not go ahead, so that this percentage will remain at 30% for January through March 2021. It was also announced that the subsidy percentage would be increased by allowing the part of the overhead that is to be reimbursed to increase along with the lost turnover: from 50% of the overhead in the case of a 30% loss of turnover to 70% in the case of a 100% loss of turnover. This increase would apply to both the first and the second period.
For more information on this matter please follow this link or contact Paul te Boekhorst or Bauco Suvaal.
