With the end of FY 2024 coming closer and looking forward to 2025 as well, it is important to take some actions either before year-end or early next year. We present you with some bite size (non-exhaustive) attention points to consider. This year-end alert will focus more on internationally active companies.

Corporate income tax (CIT) and transfer pricing

Controlled Foreign Company (CFC) impact: Under the Dutch CFC rules, passive income (e.g. dividend, interest, royalties) of (in)directly held subsidiaries of Dutch taxpayers should be included in the Dutch tax base in case certain conditions are met. Such CFC income inclusion may be abandoned in relation to dividends in case the CFC subsidiary has distributed such dividend before year-end.

Year-end action ->Consider whether such CFC subsidiaries have sufficient retained earnings to finance such a dividend distribution. Looking forward to the next year, it could also be considered to change the activities of the CFC subsidiary to mitigate CFC income inclusion exposure at all.

Transfer pricing (TP) year-end check and adjustments: Dutch taxpayers should ensure that their intercompany transactions are priced at arm’s length, meeting the Dutch TP requirements. Actual results should be monitored, and TP adjustments should be made proactively during the year where necessary.

Year-end action -> Year-end TP adjustments could be considered as a mechanism for the ‘last minute’ correction to ensure that the overall result for a reporting period is in line with the group’s TP policies. If implemented properly, year-end adjustments may help decrease TP risks and avoid potential book-to-tax differences resulting from retrospective tax adjustments. TP adjustments, for instance, imputations of interest or royalties, could lead to the recognition of deemed dividends, leading to Dutch dividend withholding tax (compliance) obligations within 1 month after TP adjustment.

Outgoing interest / royalties: Dutch companies may pay or accrue interest/royalty expenses at year-end. When certain conditions are met (e.g. recipient is low-taxed , low-substance, hybrid), this may be subject to max. 25.8% Dutch conditional withholding tax on interest and royalties. For this purpose, a conditional withholding tax return should be filed within 1 month after year-end, assuming that the interest / royalty expenses may be accrued / paid at year-end. Note that such payments, could particularly also lead to a Directive on Administrative Cooperation 6 (“DAC6”) reporting obligation. Under these rules, particularly cross-border deductible payments to certain recipients should be reported to the relevant European tax authorities within 30 days.

Year-end action -> Calculation of the correct interest percentage based on the arm’s length principle to ensure that any conditional withholding tax return can be prepared promptly in the first month of 2025 and analyze/document/report for DAC6 purposes (if any).

Interest deduction limitations: The earnings stripping measure limits the deduction of net borrowing costs (including handling costs, registration fees, currency exchange results, and cost related to interest rate swaps or currency swaps) to the highest of:

  • 20% of the fiscal EBITDA; or
  • € 1 million.

As of January 1, 2025, the percentage of fiscal EBITDA will increase from 20% to 24.5%.

Year-end action -> The increase of the percentage of fiscal EBITDA in 2025 might provide an opportunity to postpone certain costs. In this respect, it is noted that any non-deductible borrowing costs may be carried forward.

Transfer pricing mismatch rules: as per January 1, 2022, new rules to counteract mismatches in the application of the arm’s length principle have been implemented. Dutch taxpayers are required to use at arm’s length prices for their intra-group transactions. Where intra-group income or payments do not reflect an at arm’s length price, adjustments should be made.

Downward transfer pricing adjustments at the level of the Dutch taxpayer can potentially result in mismatches in cases where these downward adjustments do not lead to a corresponding upward adjustment in the jurisdiction of the counteryparty.

Year-end action -> Determine if the Dutch entity is over-remunerated for any inter-company transactions or services. If credit notes are sent prior to year-end, Dutch parliamentary history could invoked to claim that these corrections should not be considered “downward adjustment of the profit”. As such, the triggering of the mismatch rules may be prevented. Please reach out to your RSM advisor for any case specific advice.

Dutch participation exemption: Under the Dutch participation exemption, dividends and capital gains in relation to participation shareholdings are in principle exempt of Dutch corporate tax. In case the Dutch participation exemption is only analyzed retrospectively, i.e. after year-end, this could lead to surprises. A real-time check of the Dutch participation exemption could instead provide Dutch taxpayers with opportunity to take actions to optimize the Dutch participation exemption position. 

Year-end action -> Determine whether there are ‘yellow flag’ items (e.g. growth of excess cash, group receivables) on the balance sheet of the (in)direct participation shareholdings to see if there are any asset items that could jeopardize the applicability of the Dutch participation exemption. We recommend to consider to do this per quarter throughout the financial year on a real-time basis and in any case also before year-end so that ‘yellow flag’ items are resolved at year-end date. Please reach out to your RSM advisor for any case specific advice.

Functional currency ruling: Dutch CIT returns are in principle reported in the EUR currency. In case a Dutch taxpayer predominantly transacts in a different currency, this could lead to FX exposure. Dutch tax law therefore allows taxpayers to apply for a so-called functional currency ruling so that the Dutch CIT return can be prepared in the different currency of choice, provided that certain conditions are met. 

Year-end action -> A request for a functional currency ruling should be filed before year-end in order for it to be applicable as per January 1 of the subsequent financial year, if approved. For newly incorporated entities in 2024, a request filed before year-end can have retroactive effect until moment of incorporation.

Compliance obligations and deadlines

DAC7 Compliance for Digital Platforms: Under the EU's Directive on Administrative Cooperation 7 (“DAC7”), digital platform operators must report certain details about their sellers, like income, to the tax authorities of EU member states. This is to increase tax transparency in the digital economy.

Action -> For calendar year 2024, the filing deadline is 31 January 2025.

ATAD 2 documentation: Since 1 January 2020, ATAD 2 (hybrid mismatch) legislation has been introduced, which limits the deduction of payments in case of hybrid mismatches between jurisdictions that lead to a deduction non-inclusion outcome, double deduction outcome, or an imported hybrid mismatch. Taxpayers who declare in their Dutch CIT return that hybrid mismatch measures do not apply must include information in their records substantiating this.

Action -> It is recommended to review the application of the ATAD 2 legislation, especially in case of changed circumstances, and it is advised to annually update the relevant ATAD 2 documentation file.

Country by country reporting (CbCR) notifications: Dutch companies and permanent establishments that belong to an international group with a consolidated revenue of € 750 million in the previous reporting period should comply with the CbCR requirements.

Action -> These taxpayers should submit the 2024 CbCR notifications before 31 December 2024 if the fiscal year end of the group's parent company is 31 December 2024. The notification covers information regarding the local entity and parent / surrogate entity which is going to file the 2024 CbCR. The CbCR itself should be filed within 12 months after the end of the group’s financial year. For a group with a fiscal year ending on December 31, 2023, the deadline would be December 31, 2024. A non-timely, incomplete, or incorrect filing could lead to a penalty of up to € 900,000.

Public CbCR requirements: The Dutch Senate approved the bill to implement the public Country-by-Country reporting (Public CbCR) Directive in December 2023. The Directive requires multinational enterprises with total consolidated revenue of more than € 750 million in the last two financial years, whether headquartered in the EU or outside, to publicly disclose income tax information separately for each EU member state.

  • Public CbCR applies to financial years starting on or after June 22, 2024. Companies with a fiscal year equal to calendar year report for the first time for 2025. This reporting must be publicly available by December 31, 2026.

Pillar 2: The Pillar Two Global Minimum Tax Rules are effective in Dutch tax laws as of 1 January 2024, and will apply to years that start on or after that date. On the basis of Pillar Two, companies with a global turnover of generally more than € 750 million will be subject to a minimum effective tax rate (ETR) of 15% in each country.

Action -> For the first period (i.e., 2024), the deadline for filing the so-called GloBE information return will be 18 months after the financial year has ended. As such, the first Pillar 2 information return needs to be filed by June 30, 2026. However, we strongly recommend group in scope of Pillar 2 to proceed preparing in the course of 2025 to ensure that data points are available within the administration to ultimately ensure compliance when filing the GloBE information return in 2025. Moreover, we recommend companies to have a Pillar 2 compliance calendar in place to be aware of pillar 2 compliance obligations for their relevant constituent entities (i.e. GloBE information return, any Top-up Tax return deadlines, notification deadlines).

Lastly, Dutch financial statements will require a more detailed pillar 2 impact disclosure statement in relation to FY 2024 financial statements that will be drafted in the course of 2025.

VAT

Actions to be performed before 1 January 2025:

Statute of limitations: For the DTA, five years after the end of the calendar year to which the VAT relates, the right to retrospectively collect VAT expires. The DTA then can also no longer refund VAT ex officio. If the entrepreneur believes he is still entitled to a VAT refund for FY 2019, a refund request should be submitted before 1 January 2025.

New rules online events VAT: If you are organizing online events, please note that new rules apply as of 1 January 2025. The VAT is due in the country where the participant is established. This may require changes in the ERP system and potentially a registration for the OSS scheme.

An overview of corrections to be included in the last VAT return (of the financial year):

Revision: The entrepreneur may deduct the VAT charged to him directly in the period in which the goods or service is purchased. If the goods/service are not used directly, the deduction is made based on the intended use. Subsequently, at the moment of using the goods/service the initial VAT deduction is revised if the actual use differs from the intended use. At the end of the financial year, the use of the goods/service of the whole year is considered. Again, this can lead to a revision of VAT that must be included in the last VAT return.

Private use: During the financial year, an entrepreneur may deduct all VAT on costs for a company car. At the end of the financial year, VAT must be declared in respect of private use by the entrepreneur. If the entrepreneur does not know the extent of the actual use of the car, for example because no mileage records have been kept, the entrepreneur may use the flat rate of 2.7% (or in specific cases 1.5%) of the catalogue value of the car (including VAT and BPM).

Deduction Exclusion Decree (Dutch: ‘BUA’): Corrections should also be made for other private use by the entrepreneur or his staff or relations in take place in the last VAT return of the financial year. These include, for example, canteen allowances, promotional gifts, staff outings, Christmas gifts and staff facilities such as accommodation for (foreign) employees. If the benefits in kind per beneficiary per year do not exceed € 227 (excluding VAT), a correction can be omitted.

Pro rata: The VAT on general costs can be deducted pro rata by an entrepreneur making both VAT taxed and VAT exempt supplies. Often during the year, the entrepreneur uses the previous year's pro rata or a pro rata based on estimate is determined. At the end of the financial year, the entrepreneur can calculate the final pro rata. This may lead to a correction of the deducted VAT and must be included in the last VAT return of the financial year.

Upcoming legislation

New legislation as of 1 January 2025

New Dutch regulations for comparison of foreign legal forms

The Dutch classification rules for Dutch and non-Dutch legal entities and partnerships will be amended to align with international standards. As such, the Dutch government has issued a new decree for the comparison of foreign legal forms with Dutch legal forms. This Decree, which will come into effect on January 1, 2025, explains the methods for fiscal qualification of foreign legal forms in the Netherlands and gives further guidance to the Fiscal Qualification Policy for Legal Forms Act, which was adopted at the end of 2023.

Comparison Methods 
The main item of this Decree is the use of the so called “legal form comparison method”, which determines whether a foreign legal form is comparable to a Dutch legal form. This is done by comparing the nature and structure of the foreign legal form with those of similar Dutch legal forms.

If a Dutch counterpart cannot be found (or more than one comparable Dutch counterpart can be found) using this legal form comparison method, the “fixed method” must be applied. If such a foreign legal form is a tax resident in the Netherlands, the foreign legal form will always be considered non-transparent for Dutch tax purposes.

The “symmetrical method” applies to non-comparable legal forms that are not a tax resident of the Netherlands. Based on this method, the foreign legal form is treated in the same way as in the country where the legal form is considered a tax resident and as such could be either transparent or non- transparent for Dutch tax purposes, depending on the tax classification in the country of residence

Impact United States legal forms
For US entities or partnerships, this means that the US legal form such as the Corporation, Limited Liability Company, Limited Partnership (including LLP and LLLP), and General Partnership (GP), will now have to be systematically compared to Dutch legal forms to determine the classification for Dutch tax purposes. This may result in changes in the Dutch tax treatment in respect of US groups with subsidiaries in the Netherlands, or Dutch groups with subsidiaries in the US. It is therefore recommended to timely assess the potential impact this may have on US-Netherlands tax structures.

It is highly recommended to assess whether the introduction of this new legislation has an impact on the Dutch tax classification of a foreign legal entity within your structure.

Changes in tax regime for Fiscal Investment Funds, Exempt Investment Institutions and Fund for Joint Accounts: As of 1 January 2025, only investment funds and institutions for collective investment in securities may be ‘exempt investment institutions’ (vrijgestelde beleggingsinstellingen, VBI) in accordance with the Financial Supervision Act. The exempt investment institution may only offer participation to a wide public or to institutional investors. This discontinues the possibility to use the so-called ‘exempt investment institution regime’ when investing in private assets. Entities that do not meet these new conditions will lose their exempt investment institution status on 1 January 2025, even if the financial year differs from the calendar year.

If a fund for a joint account (open fonds voor gemene rekening, FGR) wants to remain independently taxable for corporation tax purposes (non-transparent), it must fulfil a new condition as of 1 January 2025. It will then have to be a Qualifying Investment Fund or a Fund for Collective Investment in Securities. The participation must be deemed to be negotiable certificates of participation.

If a Fund for Joint Account (FGR) were no longer independently liable to pay tax as a result of the new definition of the FGR, without further legislation, the fund would then have to pay tax on the fictitious profits this would generate. To avoid immediate taxation, transitory law has been introduced. A transfer facility will be introduced to defer taxation. If the transfer facility cannot be applied, then use may possibly be made of a payment facility.

  • In case a FGR exists within your legal structure, it is highly recommended to assess the impact of these legislative changes.

Adjustment of liquidation loss regime in Dutch CIT 
The liquidation loss scheme determines whether a loss incurred in the liquidation of a subsidiary is deductible for Dutch CIT purposes. As of January 1, 2025 the liquidation loss regime will be amended in two ways. The first amendment implies that calculation of the liquidation loss also takes into account a subsequent upward revaluation of an impaired receivable from the subsidiary. Secondly, the law is being amended so that non-deductible losses on sales of an indirectly held subsidiary cannot be converted into deductible liquidation losses of a directly held subsidiary. 

Adjustment of remission profits scheme (‘kwijtscheldingswinstvrijstelling’)
As of January 1, 2025, the Dutch remission profits exemption in CIT will be adjusted to address issues arising from the interaction with the new loss relief restriction that has been introduced in Dutch CIT as of 2022. Due to this interaction, the remission profits exemption could lead to partial non-exemption of the remission profits. The Dutch government recognized this adverse impact and repaired it in a legislative proposal that will be in effect as per January 1, 2025. As such, the remission profits exemption should lead to full exemption in case conditions are met.

  • Based on the afore-mentioned, it can be favorable to postpone any remissions of debt to 2025 to benefit this legislative adjustment.

Dividend withholding tax exemption 
The dividend withholding tax has several exemptions which are optional, such as exemptions for dividend from participations or dividend within a consolidated tax group (fiscal unity). The entity distributing dividend may choose whether or not to apply the exemption. This makes the beneficiary to the income dependent on the entity’s choice. It is proposed to abolish this option. If the conditions for exemption are met, then it is mandatory to apply it. This would eliminate the need to withhold and remit dividend withholding tax, which would eliminate the liquidity costs or loss of interest income for the shareholder.

New group concept for conditional withholding tax

The Netherlands applies a withholding tax on interest, royalties and dividends paid to an affiliated entity established in a low-tax country. The withholding tax is relevant when a qualifying interest exists. This may also be the case if a collaborating group is involved. As of 1 January 2025, the concept of a ‘cooperating group’ in the Dutch conditional withholding tax on interest, royalties and dividends, is changed to ‘qualifying unit’. A qualifying unit is deemed to be present when entities act together with the main purpose (or one of the main purposes) of avoiding taxation at one of the entities.

  • The burden of proof that a qualifying unit exists lies with the tax inspector. In case of doubt it is recommended to hold preliminary consultations which can offer a sense of security in advance.