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January 2011

International Dutch Tax News Best wishes for 2011! First of all we would like to wish you all the best for the year 2011. We hope that 2011 will bring you lots of opportunities.

Tax plan 2011

In our September 2010 issue of this newsletter we

already informed you briefly on the headlines of the

Budget 2011. In this edition we will provide you with

more details on the legislation that was enacted per

January 1, 2011.

On December 21, 2010, the tax plan for 2011 was

approved by Parliament. This tax plan consists of

two parts: on the one hand the tax plan and on the

other hand the remaining tax measures for 2011.

The tax plan contains several themes, the most

important ones being:

- Combating tax avoidance via structures;

- (Innovative) entrepreneurship;

- Measures to temporarily support the

housing market;

- Environmental and mobility measures.

Below we shall describe the measures that regard

these themes.

Combat against tax avoidance via structures

New legislation has entered into force to combat tax

avoidance through complex and artificial tax

structures. First measure in this respect is the

measure to combat the trade in companies that

have tax losses available that can be used for loss-

relief. This measure also is directed against the

situation where a previously profitable empty

company was bought and loss-making activities are

subsequently shifted to that company. Under the

anti-avoidance measures, losses incurred before

the acquisition of the company cannot be used to

credit against subsequent profits. Also, losses

incurred after the acquisition of the company cannot

be credited against profits made before the

company was acquired. If the holding in a company

is changed by 30% or more, losses realized can

only be compensated if certain requirements are

met, based on article 20a CITA. Losses realized

during the year in which the interest is substantially

changed will be attributed to the preceding or

subsequent book year.

A second measure that is enacted is that the real

estate transfer tax law on the transfer of immovable

property is amended to combat complex structures

aimed at avoiding this transfer tax. When a

company is sold and the assets on its balance sheet

Highlights:

- Changes enacted for 2011

The Dutch parliament approved the tax plan

and other tax measures that are enacted per

January 1, 2011. We have outlined the

headlines of changes. The main changes

regard:

- Combat against tax avoidance

New legislation has been enacted to combat

tax avoidance through complex and artificial

tax structures.

- Entrepeneurship

Several changes have been enacted to

enhance the tax climate for entrepeneurs.

- Temporary support of the

housing market In order to support the housing market,

several changes have been enacted.

- Additional legislation

Legislation on a range of topics has been

enacted. We have summarized some of the

main changes.

- Prospects for 2011

During the year 2011 changes may be

proposed to reform the Dutch tax system.

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consist for at least 50% of immovable property and

at least 30% of the assets of value of that company

consists of immovable property situated in the

Netherlands, this real estate transfer tax shall be

due. Until last year the percentage was 70% and

only real estate in the Netherlands was taken into

account. Furthermore, in the past certain techniques

were used to reduce the percentage of the real

estate on the balance sheet (e.g. funds received

under a loan from a related company in the group).

As of 2011 assets that are acquired from related

companies or persons are to be ignored when

determining the percentage of real estate in the

assets on the balance sheet. Taxable basis for this

tax remains the fair market value of the real estate

in the Netherlands.

(Innovative) Entrepreneurship

In the first place, the application of the so-called

innovation box is widened. Benefits derived from an

asset starting in the year in which a patent for that

asset was requested, and in the year prior to that in

which the patent was granted, are also covered

under the rules of the innovation box. Please note

that still a request is required by the taxpayer, at the

latest when submitting the corporate income tax

return.

Secondly, a wage tax credit can be obtained for

R&D activities. In 2011 an employer can reduce its

wage tax payments by 46% up to an amount of

€ 220,000. The excess can be reduced by 16% up

to a maximum amount of € 11 million.

Further, the corporate income tax rate has been

reduced to 25% (until 2011, 25.5%) for profits

exceeding € 200,000. Two tax rates exist, one tax

rate of 20% on the first € 200,000 in profits: this rate

remains unchanged. Secondly, a tax rate of 25%

over the excess.

Also, the loss relief facility of 3 years carry back -

which is only a provisional measure – remains also

in place during 2011. Note however that when this

facility is used the period of time available for carry

forward is reduced with 3 years.

As of January 1, 2011 a new regulation is in place

with respect to costs that an employer can

remunerate tax-free to its employees. The basic

idea is that an employer can remunerate his

employees tax free on the basis of a 1.4% general

forfeit of the total wages. In the budget proceedings,

several amendments have been made, under which

e.g. literature that one is required to read

professionally (such as jurisprudence or

advertisement magazines) can be remunerated or

be made available to employees free of wage tax

without going at the expense of the 1.4% general

forfeit of the total wages.

Also the arrangement of the accelerated

depreciation is prolonged. Investments in certain

assets to be made in 2011 can be written off in 2

years.

Finally, entrepreneurs have got the opportunity to

opt for VAT for quarterly returns. This measure was

provisional but is made structural as of 2011.

Temporary support of the housing market

In the first place, the period during which individuals

who have purchased a new house, but did not

succeed in selling their old house, can deduct

mortgage interest for both houses has been

extended from 2 to 3 years (i.e. until 1 January

2013).

In the second place, the VAT rate that is applicable

on labor used in the renovation of houses that are

older than 2 years has been reduced from 19% (the

general rate) to the reduced rate of 6%. This

temporary measure applies from October 1, 2010

until July 1, 2011. For the determination of the VAT

rate in that situation, the decisive element is

whether the taxable event takes place during that

period as set out above.

Thirdly, the period of time during which the real

estate transfer tax exemption is in place in case a

house is sold twice in a short period of time, is

prolonged to one year. Previously, this period of

time during which the real estate transfer tax on the

sale of a house is only reduced to a surplus over the

previous purchase price, was only 6 months. Note

that this is a measure that is only in place during

2011 and shall be abolished again in 2012.

Finally, the arrangement under which individuals

have a right to deduct mortgage interest, is

prolonged. Under the present rules, the right to

deduct the mortgage interest is only in place for a

period of time up to a maximum of 2 years. This

right remains in place until the end of 2012.

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Environmental and mobility measures As of March 1, 2011 the excises duty on cigarettes

and tobacco will be raised. The increase of the duty

for the widest sold category of cigarettes amounts to

€ 11.68 per 1,000 cigarettes (i.e. € 0.26 per pack)

and € 4.93 per kilogram of tobacco.

The planned phasing out of the luxury tax on motor

vehicles has been suspended. However, the

beneficial measures promoting the sale and use of

cars with a low CO2-emission will also be in place in

2011.

Tax plan 2011: additional legislations

Besides the tax plan, various other bits of legislation

have been amended. This is provided for in

additional legislation.

As regards the corporate income tax, the taxable

period for non-resident taxpayers, that have an

accounting year that deviates from the calendar

year, can link to the accounting year (as it can for

resident taxpayers). Until 2011, for non-residents,

corporate income tax is due on the profits in the

calendar year and not the accounting year of the

company).

The individual income tax has been amended to

enable the tax administration to issue tax returns to

the tax payers that already contain certain types of

income (including items relating to Box II income) on

the basis of the information that was already

available to the tax authorities (e.g. wages and

wage tax or bank account positions and dividend

withholding tax paid).

The tax rate in the first bracket of personal income

tax and wages tax is per January 1, 2011 reduced

to 1.85%. As regards 2012, the percentage is

already set at 2.00%. This reduction of the rate in

the first tax bracket of individual income tax is

combined with a higher levy rebate for individuals

earning business profits or employment income to

maintain the purchasing power of the individuals at

current levels.

The incentive for monuments has been expanded.

When the monument is no longer the main

residence of an individual, under certain

circumstances, expenditure related to such

monument may be deductible.

Under the Dutch income tax law, there is a

possibility for taxpayers with substantially fluctuating

income to request that this income derived during a

period of 3 subsequent years is averaged, which

mitigates the progressive effect of the tax rates. This

averaging results in an equal attribution of one third

of the income to each of the three years. If the

difference between the paid tax and the recalculated

tax exceeds € 545, the difference will – upon

request by the taxpayer - be paid back to the

taxpayer. To bring the Dutch legislation in line with

EU-legislation, an amendment is introduced that

provides that the facility also will apply to non-

residents who derived almost their entire income

(i.e. 90% or more) in the Netherlands, but who did

not opt to be taxed as a resident taxpayer for the 3

years.

In the past an exemption for investments in certain

small and medium companies was introduced in

Box III. Because of comments made by the

European Commission, some amendments are

applied to this incentive. The main change is that

the incentive is only applicable with respect to

issued shares, which may not be listed on a regular

stock exchange with the exception of the NYSE,

Alternext or similar exchanges for such companies.

The tax credit of 1.3% (heffingskorting) for

investments in the public interest, investments in

green funds, and social-ethical investments, will be

reduced gradually over a period of time of 4 years.

In 2014 the tax credit amounts to nil.

As regards the dividend withholding tax, the rules

on dividend notes are modernized. An electronic

note is now accepted. No note is required when no

dividend tax was withheld in accordance with a tax

treaty, or when the recipient of the dividends has an

interest of at least 5% in the distributing company as

set out under Box II of the income tax.

The VAT rules for travel agents are amended. VAT

is due as of April 1, 2012 on the profit margin

realized in the state in which the travel agent is a

resident. The profit margin equals the selling price

of the trip, less the cost for goods and services

obtained by the travel agent. Any VAT on goods and

services obtained by the travel agent will not be

taken into account as input VAT. Accordingly, the

long-standing practice giving a special treatment to

travel agents under the Decree of March 22, 1971

will be terminated as of April 1, 2012.

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The VAT rate for performing arts, art, pieces of art,

collector items and antiques will as of July 1, 2011

be increased from 6% to 19%.

The insurance premium tax rate will be increased

from 7.5% to 9.7% as of March 1, 2011. This is a

temporary increase and as per 2015 the rate shall

be decreased again to 9.5%.

The inheritance tax is amended in relation to

changes made to the definition of "partner" in the

general taxes Act under the Fiscal Simplification Act

2010. The amendments that are proposed aim at

maintaining the current situation, and neutralizing

the changes to the definition of "partner" in the

General Taxes Act.

The exemption of gift tax due by members of the

royal family will be restricted. The exemption applies

only to gifts made by members of the royal family in

their official capacity.

Under the energy tax, reduced rates are applied for

the use of natural gas for the growth of agricultural

products under glass. In the case where no natural

gas is available, the reduced rates shall apply to

mineral oils. The approval by the European

Commission expires on December 31, 2010.

Although the request for an extension has been

filed, it is uncertain whether the requested extension

will be granted. Therefore, the reduced rates will no

longer be applicable from a date to be determined

by a Royal Decree.

Changes are made to the tax collection Act of

1990: the interest that a taxpayer either receives (in

case of having paid too much tax) or pays (in case

of having paid too little) varies. Interest receivable

by the taxpayer is 1.5% less than the interest

payable.

Prospects

The under minister of finance has indicated during

parliamentary proceedings that before April 2011, a

letter shall be sent to Parliament regarding a

possible revision of Dutch tax law. Amendments are

not intended. Instead, it is aimed at modernization.

The main subjects to be dealt with in that respect –

and also most likely to be dealt with in the letter –

are the following.

In the first place, the tax treatment of private

dwellings and more in particular a possible limitation

in mortgage interest deductibility.

Secondly, several topics in the corporate income tax

spheres are to be reconsidered, such as broadening

the tax basis and the difference in treatment

between equity and loans.

Further, an investigation into the (im-)possibility to

enact a flat tax rate, the abolition of several minor

taxes, variation in the taxation of a car (e.g. taxation

per kilometer or more/less taxation on fuel) and the

introduction of one facility for entrepreneurs.

All together, quite some developments are taking

place or shall possibly start taking place in 2011.

CROP tax advisors is also in 2011 in place to assist

you in dealing with these Dutch tax developments

and matters. We look forward working with you on

these matters.

For information please contact: Marco Visser or Frans Tempel T: +31 33 495 25 00 T: +31 33 463 57 27 E: visser@crop.nl E: ftempel@crop.nl Disclaimer: CROP registeraccountants and CROP belastingadviseurs makes no representation nor gives any warranty (either express or implied) as to the completeness or accuracy of this publication. CROP registeraccountants and CROP belastingadviseurs is not liable for the information in this publication or consequences of the use of this publication. CROP registeraccountants and CROP belastingadviseurs will not be liable for any direct or consequential damages arising from the use of the information contained in this publication.