Tax measures during COVID-19 in The Netherlands

Introduction

The Dutch Government has taken a number of emergency measures in relation to the outbreak of the coronavirus. Businesses naturally have concerns about their finances, keeping people employed and, indeed, keeping their business running. In order to respond to the developments, on 17 March 2020 the government announced an Emergency Package for jobs and the economy applicable for the next three months (Emergency Package). The government regularly releases updates in respect of the emergency measures. Below we will explain the tax measures part of the Emergency Package, as well as a number of other tax issues for businesses because of the coronavirus.

The information below is most recently updated with the measures and information provided by the government up to and including 7 April 2020.

Tax measures part of the emergency package

Postponement of payment of various taxes

The conditions for postponed payment of various taxes have been temporarily eased for businesses with payment difficulties due to the coronavirus. The eased conditions apply in respect of postponed payment of:

• personal income tax;
• corporate income tax;
• VAT;
• wage tax;
• tax on games of chance;
• insurance premium tax;
• landlord levy;
• environmental tax;
• excise duty; and
• consumption tax.

Dividend withholding tax is explicitly excluded from the eased conditions as the government discourages businesses to distribute any dividends for now.

Upon receipt of the request for postponed payment due to the coronavirus, the Dutch tax authorities will grant deferred payment for a period of three months in respect of tax assessments outstanding and imposed as from the date the request has been filed. The request can be filed either electronically on the (Dutch) website of the Dutch tax authorities or per mail to:

Dutch tax authorities
PO Box 100
6400 AC Heerlen

The request must indicate that the payment difficulties are caused by the coronavirus and should be filed after a tax return has been submitted and a tax assessment has been imposed.

A deferral longer than three months is possible, but the Dutch tax authorities will request additional information. If the total outstanding tax liability is above €20,000, the taxpayer must provide a statement from a third-party expert (eg an external accountant or tax advisor), to substantiate the payment difficulties. If the total outstanding tax liability is below €20,000 a statement from a third-party expert is not required, but the taxpayer should nonetheless provide evidence that revenue, orders or reservations have decreased significantly compared to previous months. The additional information should be provided within three months. The request for longer deferral can only be filed per mail (not electronically on the website of the Dutch tax authorities).

Also, in the period to come the Dutch tax authorities will not impose or reverse penalties for late payment failure to pay taxes (in time).

The Dutch tax authorities have indicated that if a request for postponed payment (as described above) is filed by a director of a company subject to corporate income tax and the company is not able to pay wage tax and/or VAT, the request for postponed payment will in principle also considered a 'notification about inability to pay wage tax and/or VAT (melding betalingsonmacht), which should avoid statutory reversal of the burden of proof for directors' liability.

The eased conditions for postponed payment apply in any event until 19 June 2020.

Releasing G-accounts

Businesses may use a G-account (G-rekening) registered with the Dutch tax authoritiesto mitigate any recipients' and chain liability (inleners-en ketenaansprakelijkheid) in respect of, shortly, failure of their subcontractors to pay VAT and wage tax in time. In this context the amount of VAT and/or wage tax will be 'blocked' on a G-account so that the funds available on the G-account are secured for payment to the Dutch tax authorities.

Businesses using a G-account will be allowed to release part of the G-accounts to the extent postponed payment for VAT and wage tax is allowed. With these measures also businesses using a G-account can benefit from the eased conditions for postponed payment of VAT and wage tax due to the coronavirus.

The Dutch tax authorities have provided an instruction on their website how businesses can request for a release on a G-account. Shortly, businesses has to request for postponed payment of VAT and/or wage tax and, subsequently, request for release on a G-account through filing a specific form available on the website of the Dutch tax authorities.

Postponement of payment of taxes levied by municipalities and water boards

The Association of Netherlands Municipalities (ANM) (Vereniging van Nederlandse Gemeenten) advises municipalities in general to offer postponement or the possibility to spread the payment of local taxes. This could be at the request of taxpayers or through policy for specific categories (for example the hospitality business) and certain taxes (for example municipal levies typically levied from hotels, restaurants and cafés). Also, given that the temporary reduction of the interest on tax overdue from 4% to 0.01% as from 23 March 2020 (see below under Recovery and tax interest temporarily to 0.01%) does not automatically apply to local taxes, the ANM advices municipalities to introduce a policy in this regard. The adoption of the advice of the ANM may differ from one municipality to another.

Furthermore, the water boards (waterschappen) have announced several measures including postponed payment of water board taxes for a period of three to six months and payment arrangements for businesses that are not able to pay the water board tax due to the coronavirus.

Postponement energy tax and Sustainable Energy Storage

In a decree still to be published, the government will allow that energy suppliers who send customers final invoices on a monthly basis will not be subject to energy tax (ET) and 'Sustainable Energy Storage' (SES) (including VAT) in respect of the months April, May and June 2020, until October 2020. So, the customers of these energy suppliers do not have to pay ET and SES (including VAT) for the months April, May and June and will receive an additional invoice for this ET and SES in October 2020. It is expected that most (large) energy suppliers will implement the decree.

This measure shall not apply in respect of the supply of energy to individuals and small enterprises.

Recovery and tax interest temporarily to 0.01%

If a tax assessment is not paid on time, normally 4% interest must be paid from when the tax should have been paid. The government has decided that this interest rate will be temporarily reduced from 4% to 0.01% from 23 March 2020. Since it is not technically possible to reduce the collection interest to 0%, this interest has been set at 0.01%.

In certain circumstances, taxpayers also have to pay interest, for example because the tax return is submitted too late or understates the tax payable, to the Dutch tax authorities. This interest rate is 8% for corporate income tax and 4% for other taxes. For implementation reasons, the temporary reduction of this rate to 0.01% will take effect from 1 June 2020 (except in relation to personal income tax, which will start a little later on 1 July 2020).

Lowering the provisional tax assessment

Taxpayers currently pay tax on the basis of a provisional assessment of personal income tax or corporate income tax. Businesses which expect a lower profit because of the coronavirus can submit a request to the Dutch tax authorities to reduce the provisional assessment of personal income tax or corporate income tax. As a result, businesses will immediately pay less tax. It is also possible that the new provisional assessment is less than the amount that the taxpayer has already paid in the first months of the year. In that case, the Dutch tax authorities will refund the difference to the taxpayer.

The Dutch tax authorities only accept requests filed by appropriate means (ie the digital portal of the Dutch tax authorities, the form available on the website of the Dutch tax authorities or through filing software). A request per email cannot be accepted for processing.

Lenient policy deadlines WBSO-notice and request S&O-statement

An employer who applies the WBSO (ie briefly, tax incentives for research and development activities) and received an S&O-statement (ie a research and development statement) in 2019 should normally file a WBSO-notification ultimately on 31 March 2020 with the Netherlands Enterprise Agency (Rijksdienst voor Ondernemend Nederland). The deadline of 31 March 2020 has been postponed until 15 June 2020. In the WBSO-notification the employer has to state the hours of research and development and any costs and expenses made in 2019.

Also, the deadline for applying the WBSO as of 1 April 2020 has been postponed to 5 April 2020 instead of 31 March 2020.

Postponement filing personal income tax return

If individuals are not able to file their personal income tax return in time (ie before 1 May 2020), for example due to the coronavirus, the deadline can upon request with the Dutch tax authorities be postponed. The request can be filed electronically or in a phone call with the Dutch tax authorities. In some cases individuals will be granted postponed filing of the personal income tax return automatically until 1 September 2020, for example if appointments between the taxpayer and the Dutch tax authorities have been cancelled due to the coronavirus.

Reduction of customary wage (gebruikelijk loon)

Shareholders of Dutch companies holding at least 5% of the shares and who also work for the company, this typically concerns directors who own the majority of the shares (directeur groot aandeelhouder or DGA), are subject to the so-called customary wage rules. These rules provide, briefly, that the DGA will be (deemed) to receive a certain (minimum) customary wage for wage tax purposes.

The Dutch tax authorities have mentioned to apply a flexible approach in respect of determining the customary wage in 2020 if the coronaviruses has a major adverse impact on turnover and liquidity of a company. The Dutch tax authorities allow the company to determine the customary wage for 2020 at the end of the financial year (when more information is available about the impact of the coronavirus on the company) and the company and DGA may temporarily agree on a lower monthly salary going forward (retroactive effect is not allowed). This does not require prior consultation with the Dutch tax authorities.

Certain other tax considerations for businesses

Revenue problems for businesses

Revenue problems arise when the purchase prices of products and semi-finished products rise (because production in Asia and other parts of the world comes to a standstill) and production and / or sales come to a halt, for example due to cancellations (particularly in the holiday sector). Taxpayers are advised to investigate whether any losses that may arise for the levy of corporate income or personal income tax can be deducted at an early stage. For example, consideration can be given as to whether receivables or inventories can be written down, or provisions can be made, for corporate income tax or personal income tax purposes.

Issues with tax residency, permanent establishment and certain (minimum) substance requirements

Travel restrictions can affect the place of residence of companies for tax purposes. A company is usually located where actual management takes place. Due to travel restrictions, company directors may (temporarily) not be able to travel to attend board meetings in the country of residence of the company. If the directors attend meetings and take decisions by telephone from their country of residence, care must be taken to prevent the actual management of the company being moved to that country or that a permanent establishment is not created in that country, with all the disadvantageous tax consequences that can follow.

Furthermore, certain (minimum) substance requirements are under circumstances applicable to intra-group financing and licensing companies. If these specific substance requirements are not met, information will be exchanged automatically with other jurisdictions.

The (minimum) substance requirements (extended with a few more requirements) may under circumstances also apply to non-Dutch intermediary holding companies holding an interest in a Dutch company, if these non-Dutch intermediary companies have to evidence that they should be eligible for the Dutch dividend withholding tax exemption and absence of foreign tax liability.

The (minimum) substance requirements mentioned above have in common that important board decisions have to be made in the Netherlands. Measures taken by jurisdictions during the coronavirus may complicate meeting the (minimum) substance requirements in the Netherlands (eg board members not able to attend board meetings in the Netherlands). The Dutch Association of Tax Advisors (Nederlandse Orde van Belastingadviseurs) have requested the Dutch tax authorities to take a lenient approach towards meeting the (minimum) substance requirements during the coronavirus, however the Dutch governments had not yet responded to these requests. 

We do expect that the Dutch tax authorities will take a lenient approach towards issues with tax residency, permanent establishment and certain (minimum) substance requirements following the approach already taken by certain other countries.

Costs of transactions that have been postponed or dissolved

Due to the coronavirus, all kinds of transactions, such as deliveries of goods and services, but also, for example, acquisitions of companies or financial transactions, may be postponed or cancelled. An entrepreneur may then have to pay compensation. The question then arises whether or not this compensation is subject to VAT and whether the compensation is deductible for corporate income tax purposes. This will have to be investigated on a case-by-case basis.

Cancellation costs of personnel events for employers

The cancellation costs of staff events and (ski) trips are generally not covered by the work-related costs scheme under the Payroll Tax and the BUA under the sales tax.

This is because the cancellation means that employees do not benefit from the work-related costs scheme. This is different if and insofar as employers reimburse the cancellation costs incurred by their employees. In the latter case, this involves payment of wages because the employer then pays the private costs of the employee(s).

In connection with a cancellation, an employer will not have to make a VAT correction under the BUA, because the cancellation does not actually provide goods or services that are used for the personal purposes of the employees.

Tax-free allowances for home workers

Due to the coronavirus, many employees are required to work from home. When working from home, there will often be a need for certain technical resources, such as a laptop, mobile phone and printer. These resources can be made available tax-free, provided that, in short, the resource is necessary for the proper fulfilment of the employment, the employer does not charge the costs on to the employee and the employee returns the resource when he no longer needs it.

Allocation of costs and losses pursuant to transfer pricing rules

In a time of acute reduction of turnover, increasing costs and resulting losses, the question arises rapidly to which group entity these costs and losses can be allocated. Multinational enterprises often have "profit centres" and "cost centres" within their supply chain where the latter usually are compensated on a cost-plus basis and not considered to be incurring losses. In the case of dismissals and labour-related costs it often is clear that such costs find a solid basis in local labour law arrangements, agreements with the works council and other requirements. Those costs can often also best be managed by the entity where the dismissals take place and labour related costs are incurred. These are persuasive arguments to allocate the costs to that entity, even if for transfer pricing purposes it has the characterization of a cost centre that incurs limited risks and receives a cost-plus remuneration on its operational costs.

Advance Pricing Agreements / Determination agreements regarding transfer pricing

Entities that have entered into a so-called APA or determination agreement with the revenue service regarding transfer prices for 2020 and later years need to review the conditions of existing agreements. It may be relevant to pro-actively invoke the critical circumstances clause (for example based on changed economic conditions) to legally be able to report a lower profit than agreed or losses, to the extent the revenue service itself does not raise it.

Parties that are currently negotiating an APA/determination agreement need to consider the fact that comparables from previous years do not present a reliable picture of expected turnover and profit expectations for the enterprise. The applicable economic analysis will need to be corrected for the changed circumstances. It should also be clear that in cases where a profit split has been agreed, this should also include a split of losses in extreme circumstances.

Furthermore, the Dutch transfer pricing decree provides instructions on how subsidies are to be treated for transfer pricing purposes. This may be relevant considering the transfer pricing impact of financial support for businesses. There is a distinction in treatment between broadly granted subsidies and specific industry subsidies. For example, if there is a direct relationship between the subsidy and the product or service that is to be delivered with the benefit of that subsidy, then the subsidy is expected to serve to reduce the cost base of that entity for transfer pricing purposes. For example, a subsidy to encourage the use of more costly raw materials to support using ecologically sustainable materials instead of polluting materials, can be included in the transfer pricing analyses. However, subsidies that are granted to an entity as such and that do not have any causal relationship with the specific activities of that entity would generally not be applied against and reduce the cost base of that entity. So MNEs will need to consider how subsidies are reflected (or not) in testing the transfer pricing outcome of group entities. While a subsidy reduces the operating cost of a company, it is not a given that it should be included in the transfer pricing analysis.

Final remarks

Whilst the tax consequences resulting from the outbreak of the coronavirus are not currently the top priority of businesses which are in survival mode, nevertheless taxpayers who have identified the tax concerns of their businesses at an early stage are very likely to emerge better from this situation in the medium term. This certainly also applies to the application of the government's tax measures under the Emergency Package.

See our Coronavirus (COVID-19) feature for more information generally on the possible legal implications of COVID-19.