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TAX PLAN 2014
In this Budget Day Special Edition, Taxperience discusses the most important proposals of the Tax Plan 2014 and the additional relevant legislative proposals. The special edition is structured as follows:
measures for entrepreneurs and private persons;
measures for employers;
measures relating to cars;
measures relating to financial planning;
other measures.
Except where stated otherwise, the proposed measures will take effect as of 1 January 2014.
Measures for entrepreneurs and private persons
Freeze on income tax rates
Each year, the Tax Plan generally contains increases in income tax rates and rate brackets. However, not the Tax Plan 2014 - in 2014, brackets and rates will remain the same. The government does intend to increase the income tax percentage in the first bracket by 0.06 but this will not happen until 1 January 2016.
The standard rates for income tax/national insurance contributions for 2014 are as follows:
Income tax rate/national insurance contribution 2014 Taxable income in excess of (€) But not more than (€) Rate for 2014 (%) 1st bracket - 19,645 37 2nd bracket 19,645 33,363 42 3rd bracket 33,363 55,991 42 4th bracket 55,991 - 52
Here the basic assumption is that the national insurance contributions will not change.
General tax credit amended
The maximum for the general tax credit has been increased to EUR 2,100 and at the same time has been reduced for higher incomes.
This will further manifest itself in the years after 2014.
Reduction of RDA
In 2013, entrepreneurs may apply an additional deduction to their tax profit for costs and expenses (other than wage costs) which are directly attributable to research and development - the so-called RDA. In the explanatory notes to the Tax Plan 2014, the government has indicated that it wishes to cut back on the RDA. The Tax Plan 2014 does not contain exact percentages/amounts with regard to these cuts but for the time being it is certain that the available budget for the RDA will be considerably reduced. Entrepreneurs who profited from the RDA in 2013 and do not expect any changed circumstances in 2014 must therefore keep a lower RDA in mind. The definitive RDA percentage for 2014 will be determined by ministerial order at the end of 2013.
Increase in EIA, MIA and Vamil threshold
As of 1 January 2014 investments with a value of less than EUR 2,500 will no longer be considered for the Energy Investment Allowance (EIA), Environmental Investment Allowance (MIA) or random depreciation on environmental business assets (Vamil). A threshold of EUR 450 will continue to apply for the small-scale investment allowance (KIA).
Investing in asbestos remediation
Companies that invest in environmental business assets can be considered for the environmental investment deduction (MIA). This is the case for example when carrying out asbestos remediation, whether or not in combination with installing solar panels. Investments in residential homes or houseboats are excluded from the MIA however. The Tax Plan 2014 does allow business lessors of residential accommodation to apply the MIA to carry out asbestos remediation for example, whether or not in combination with installation of solar panels.
Abolition of VAT on self-supply
The Tax Plan 2014 means the end of the so-called VAT on self-supply. The objective of this tax was to neutralise the difference in VAT levied on a self-manufactured product and a similar product if it were to be purchased from another entrepreneur. The self-supply tax means that on balance VAT is levied on
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manufactured products, which were not yet subject to VAT. The lapse of the self-supply tax therefore means an end to the VAT levy on the value of self-manufactured goods if those goods are used for activities where no right or full right to deduction exists.
Input tax due to self-supply
It is possible that at the time that the VAT on self-supply is abolished, an entrepreneur will already have deducted input tax on goods and services because he was expecting to have to pay the tax on the first use of a self-manufactured product. Despite the abolition of the VAT on self-supply the entrepreneur maintains the initial right to deduct the input tax on goods and services, which he used to manufacture a new product, provided he was entitled to do so prior to abolition of the VAT on self-supply. In addition, a second test must be taken into account: the point in time when the entrepreneur uses the previously purchased goods and services. If at that time the earlier deduction based on the purpose taxed at the time differs from the actual purpose, the earlier deduction will be corrected. The second test for the goods and services purchased when the self-supply still applied as taxed purpose takes place no later than the time when the newly manufactured product for which the entrepreneur has used the goods and services is put into use. Incidentally, for self-supply the entrepreneur can no longer deduct the VAT owed due to this supply insofar as he does not use the new product for activities that are exempt from VAT.
No transfer tax on participation in investment fund
As of 1 January 2014, in principle anyone with a participation in certain funds with the beneficial ownership of one or more properties no longer has to pay any transfer tax on this acquisition. This concerns participation rights in investment funds or funds for group investment in securities. The condition does apply that the interest held is less than one third. The tax authorities will also look at the assets of affiliated persons and bodies and related transactions. This regulation means that the distinction between open and closed funds lapses. It is also important that the government wishes to deal with the relative increase of an economic participation in the funds referred to in the same way as the acquisition of rights in such funds.
Property and legal entities
Shares or membership rights in a body can now qualify for transfer tax as property if roughly speaking more than 50% of the assets of that body consist of property. Transfer tax is then owed on acquisition of these shares. As of 1 January 2014, the government only wants to be able to qualify shares or rights in legal entities as property. The term ‘property body’ will be replaced by ‘property legal entity’. Foreign partnerships, which have corporate personality under foreign law, can also qualify as ‘property legal entities’.
Potential prison sentence for failure to pay taxes
If you file your tax return on time but deliberately do not pay the owed tax, you will be risking a prison sentence in future. The government wishes to amend the law on this point. Currently a taxable person who files a correct tax return but then fails to pay cannot be prosecuted for tax fraud. He can be given an administrative fine but it is often already certain that this fine is not collectible and therefore has little effect. In order to deter the potential fraudster, the government therefore wants a prison sentence - or a higher fine - if a taxable person deliberately pays too late or not at all.
Measures for employers
Crisis levy also in 2014
The pseudo final levy (the ‘crisis levy’) for high incomes will be extended by one year. This means that in 2014 as well,employers must pay a levy of 16% on an employee’s wage insofar as it is in excess of EUR 150,000. This concerns the wage on which income tax was paid in 2013.
Work-related Expenses Scheme
Earlier this year the State Secretary for Finance was aiming for a statutory amendment to the Work-related Expenses Scheme. It was expected that this would be implemented as part of the Tax Plan 2014. Unfortunately, the Tax Plan, as it has been presented, does not show any amendments in this respect.
Education rebate lapses
This had already been announced and has been laid down in this legislative proposal. As of 1 January 2014 the education rebate will
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lapse. At that time, a new subsidy scheme will take effect.
R&D bracket increased, but rate decreased
The Tax Plan 2014 raises the first bracket for the R&D rebate from EUR 200,000 to EUR 250,000. This means the high percentage of the R&D rebate applies to a larger part of the R&D wage costs. This measure is mainly focused on small to medium-sized enterprises. In return for the bracket expansion the rate in the first bracket has been decreased from 38% to 35%.
Broader R&D set-off possible
The Tax Plan offers a solution for those situations where an amount not yet set off in R&D rebate is left over at the end of that R&D declaration period. Those allowed to apply the R&D rebate can set this amount off with the deductions at source owed in total for all tax periods ending in the calendar year of the period for that R&D declaration. Therefore, both for tax periods, which have already passed as well as tax periods still to come in this calendar year.
Soon it will be possible for each person allowed to apply the R&D rebate to apply for an R&D declaration for the entire calendar year.
Employed person’s tax credit amended
The maximum tax credit for employees will be increased by EUR 374 in 2014. In addition, for higher incomes the tax credit will be reduced in three steps to nil, with the result being that as of 2017 anyone with an income of around EUR 110,000 or more will no longer be entitled to tax credit.
Measures relating to cars
Old-timers to stay in the garage in the winter
As of 1 January 2014 an exemption for road tax only applies to all motor vehicles aged 40 and older. In addition there will be a transitional scheme for cars and vans running on petrol, motorbikes, buses and lorries which on 1 January 2014 are 26 years old or older but not yet 40 years old. These vehicles are eligible for a quarter of the rate for motor vehicle tax (MRB) for the entire calendar year with a maximum of EUR 120. This is subject to the condition that these vehicles are not used on
public roads during the months of January, February and December.
Cars and vans running on diesel or LPG aged 26 and older but not yet 40 years old are not eligible for the transitional scheme. The full MRB rate is owed for these cars.
Foreign licence plates dealt with
In order to resolve the situation where no tax is paid for cars with foreign licence plates, a so-called residence assumption has been introduced. This means that anyone registered or who should have been registered in the municipal personal records database (GBA) is considered to be a resident of the Netherlands for motor vehicle tax purposes. He owes motor vehicle tax from the time that he registers or should have registered, even if the car has foreign licence plates.
Diesel and LPG are going up
In addition to the annual inflation correction, duties on diesel will be increased by 3 cents per litre, whilst the duties on LPG will be increased by 7 cents per litre.
Measures relating to financial planning
Right of entitlement to periodic payments paid out in one payment
Under the Tax Plan existing rights of entitlement to periodic payments falling under the periodic payments entitlement exemption no longer have to be paid out in periodic instalments. A proposal has been put forward to create the possibility to pay out these rights in one payment without levying revisionary interest. No distinction will be made between a right of entitlement to periodic payments in a private company incorporated to make periodic payments (stamrecht bv), an investment institution, a bank or an insurance company. The payment is taxed in its entirety in box 1. If the entitlement is paid out in one payment in 2014 tax will only be paid on 80% of the total amount paid out.
As of 1 January 2014, the fiscal facilitation of new rights of entitlement to periodic payments will lapse. The periodic payments entitlement exemption will be abolished as of that date. This means that from 1 January 2014 onwards anyone receiving payments to replace lost earnings (a “golden handshake”) will have an
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income tax levy in box 1 for the entire amount in the year of receipt.
Gifts tax-free up to EUR 100,000
The one-off increased exemption from gift tax for children aged between 18 and 40 who receive a gift from their parents in relation to their own home has been relaxed on a number of points. The amount of the exemption has been increased from EUR 51,407 to a maximum of EUR 100,000 as of 1 October 2013 to 1 January 2015. The group of givers has also been temporarily increased. The exemption will soon also apply to anyone receiving a gift from other persons besides a parent (such as other family members or third parties). The exemption also applies for those outside of the ages referred to.
The gift must be related to the own home. This could be in order to purchase or renovate your own home, to buy out the rights of leasehold, superficies or perpetual hereditary fixed-rent lease with regard to this home or to pay off the mortgage.
Private deed for deduction for gifts
In order to be eligible for the deduction of regular gifts to public benefit organisations (ANBI) in certain cases the gifts must be based on an agreement laid down in a notarial deed. This also applies for public benefit organisations or associations with at least 25 members. If the government has its way, periodic gifts will no longer have to be laid down by notarial deed. A private agreement will be sufficient. This offers the parties involved more flexibility, will save on notary fees and reduces the administrative charges.
Stricter rules on Separated Private Assets
The government believes that tougher action must be taken with regard to constructions with so-called Separated Private Assets. This includes trusts, foundations and other foreign special-purpose funds where assets are separated from heirs or other beneficiaries by gifting or otherwise disposing of assets. The general rule is that assets and liabilities and income and expenditure for separated private assets are fiscally allocated to the contributor of the assets. To prevent double taxation the law makes an exception to this allocation rule. The allocation of the assets to the contributor is omitted (allocation stop) if there is a case of
an actual tax levy at the level of the separated private assets.
It seems that this separated private assets regime is frequently used to get around the box 2 levy ‘substantial interest’ and to evade the interest deduction restriction against profit shifting for corporate tax. In order to safeguard the levy on the substantial interest claims, the government wishes to include in the Dutch Income Tax Act that if shares or profit certificates belonging to Separated Private Assets are no longer allocated to the taxable person this will lead to a taxed (notional) disposal of these shares or profit certificates in the Separated Private Assets. It does not matter whether the taxable substantial interest holder or former substantial interest holder continues to hold a substantial interest (for example preferential shares) in the company in question.
Another proposal is to prevent the impact of the allocation stop in the interest deduction restriction targeting profit shifting. Measures have also been proposed to rule out construed loss from Separated Private Assets.
More activities possible for fiscal
investment institutions
Investment institutions can be considered for the application of a 0% corporate tax rate. One important condition is that the objects and actual work of the investment institution consist of investing capital. Legislative proposal OFM 2014 makes it possible for property investment institutions to offer additional activities. This could include carrying out certain facilities services for tenants such as cleaning services or arranging for catering, reception or meeting services. From now on fiscal investment institutions may incorporate this kind of work in a normal taxable subsidiary and maintain their investment institution status.
Valuation of service flats
The WOZ value (value for the purposes of the Dutch Valuation of Immovable Property Act) of a service flat can be high because of the services that have nothing to do with the actual accommodation, such as meals or hairdressing. Heirs are then sometimes taxed for a much higher amount than what they have actually inherited. Therefore, as of 1 January 2014 the law stipulates that the market value (WEV) will be considered for a service flat if
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that value, as the result of a personal obligation to pay service costs, differs to a significant extent from the WOZ value.
Multiplier for gifts extended for a year
A multiplier for gifts to cultural institutions applies for income tax and corporate tax. This multiplier means that to determine the deduction the amount of the gifts is increased by 25% or 50% but by no more than EUR 1,250 or EUR 2,500. The statutory term of this regulation has been extended by a year and will now run up until the end of 2017.
End of optional scheme for persons taxable abroad
The current scheme where persons liable for tax abroad can choose to be treated for income tax as a domestic taxable person is being revised. The proposed scheme is simpler than the current scheme. Under the new scheme for example you can no longer opt for the same treatment as persons taxable in the Netherlands. As of 1 January 2015, one either qualifies for the new scheme as a person taxable abroad or not. In any case residents of EU Member States, the European Economic Area (EEA), Switzerland or the BES islands who earn 90% or more of their income in the Netherlands qualify as persons taxable abroad. If one qualifies as a person taxable abroad then in principle one is entitled to the same deductibles and tax credit as persons taxable in the Netherlands. By only taxing the income from the Netherlands the takeback scheme and clawback scheme and other preventive rules can lapse. The worldwide income and a calculation to prevent double taxation will therefore no longer be used. Residents of other countries with which the Netherlands has a convention to prevent double taxation do not fall under the new scheme. Other persons liable for tax abroad can be designated as qualifying as persons liable for tax abroad by ministerial regulation.
Other measures
Intentionally filing an incorrect provisional assessment or tax return? Punishable by negligence penalty
Intentionally providing incorrect or incomplete data and information in the provisional assessment or tax rebate scheme is fineable. The inspector can impose a negligence penalty to a maximum of 100% of the amount of tax that was or would have been wrongfully returned or that wrongfully was not or would not have been paid.
Tax interest corporate tax raised to 8%
As of 1 January 2014 it remains applicable that interest on overdue tax will be in line with statutory interest on non-commercial transactions. A lower limit of 4% will apply which is new. In addition, shortly an exception for interest on overdue tax will apply for corporate tax. This will be in line with the statutory interest for commercial transactions with a lower limit of 8%.
September 2013
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