Background
In order to address the tax issues that arise from the increasing digitalization of economies, the OECD has been working on a Two-Pillar solution that reforms the current international taxation rules. Pillar Two proposes to implement an agreed minimum effective tax rate in countries in which an MNE operates. The European Commission proposed to implement Pillar Two by way of an EU directive. On 22 December 2021, the European Commission published the first draft EU Directive on the Pillar Two rules. On 24 October 2022, the Dutch government published the draft bill for Pillar Two. On 12 December 2022, the EU Member States reached a unanimous consensus on the proposed directive.
Minimum Tax Act 2024
The Minimum Tax Act 2024 is a global anti-base-erosion (“GLOBE”) regime that proposes to implement an agreed minimum effective tax rate of 15% in each country in which an enterprise operates. In case the effective tax rate of an entity falls below the minimum effective tax rate of 15%, the entity is considered a low-tax entity, and an additional tax is levied to ensure the threshold of the 15% minimum effective tax rate is met.
The ‘Minimum Tax Act 2024’ applies to multinational enterprises and domestic enterprises with a consolidated group revenue of at least EUR 750 million. Furthermore, under certain circumstances, a number of organizations will be exempt, such as investment funds, pension funds, and real estate investment vehicles. For further information, we refer to our previous tax alert on the Two-Pillar approach of the OECD.
Key rules
The proposed Dutch Minimum Tax Act 2024 currently consists of the following three key rules:
- The Qualifying Domestic Minimum Top-up Tax (‘QDMTT’) – allowing the Netherlands to levy a top-up tax on low-taxed entities situated in the Netherlands.
- The Income Inclusion Rule (‘IIR’) – allowing the Netherlands to impose a top-up tax at the level of a Dutch parent entity in respect of a low-taxed constituent (in)direct subsidiary.
- The Undertaxed Profits Rule ‘(UTPR’) – allowing the Netherlands to levy for the Netherlands to levy a top-tax on a parent entity and constituent entities in case the low-taxed entity is not captured by the QDMTT or the IIR implemented by other states.
Implementation in Dutch legislation
The proposed Minimum Tax Act 2024 will be transposed into a separate tax act for which a separate levy will be imposed. The proposal includes both an obligation for qualifying multinationals to file a self-assessed Pillar Two information return, as a tax return. In principle, the returns must be filed within 17 months. For the first year, a deadline of 20 months applies.
Main Challenges for in-scope businesses
In-scope businesses will face multiple challenges in preparation for the Dutch Minimum Tax Act 2024. Extensive company data is required to ensure that the effective tax rate of the multinational at the jurisdiction level can be calculated in accordance with the regulations of Pillar Two.
Furthermore, the draft bill contains various regulations that will result in corrections to the company data before the effective tax rate can be determined. It is important to get a sufficient understanding of these regulations and outcomes to determine the effect of Pillar Two on the company.
Based on the calculations of the effective tax rate, the potential top-up tax will need to be calculated, for which certain active business-related carve-out exemptions can be claimed.
In addition, it will need to be considered which jurisdiction in which the multinational has a presence has implemented Pillar Two, and to what extent Pillar Two is already applied in these other jurisdictions. Pillar Two contains regulations with respect to the order in which jurisdictions can levy a top-up tax.
Planning
The Dutch Minimum Tax Act aims to drastically change the landscape of Dutch taxation and will increase the complexity of the international tax system. This could have far reaching consequences for MNEs that fall within the scope of Pillar Two. The Dutch Minimum Tax Act is envisaged to be implemented on December 31, 2023. In addition, it is proposed to have the key rules take effect in the following financial years:
- The Qualifying Domestic Minimum Top-up Tax (‘QDMTT’): for financial years starting on or after December 31, 2023.
- The Income Inclusion Rule (‘IIR’): for financial years starting on or after December 31, 2023.
- The Undertaxed Profits Rule ‘(UTPR’): for financial years starting on or after December 31, 2024.
We recommend to gather relevant information such as the effective tax rates per jurisdiction and make an assessment of how the Dutch Minimum Tax Act 2024 has an impact on your business. Subsequently, we recommend to make an impact assessment which could lead to rethinking the current structure.
Way forward
Of course we can assist you with the obligations arising from the Dutch Minimum Tax Act 2024. We can help you with the assessment of the precise impact the Minimum Tax Act will have on your company as well as assist you with your compliance framework. We will keep you informed on any further developments and can help you in the complete process.
Please contact us if you have any further questions
