The Netherlands; the first EU country with a bill for the Minimum Tax Rate Act 2024 | Deloitte Netherlands

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The Netherlands; the first EU country with a bill for the Minimum Tax Rate Act 2024

The bill for the Minimum Tax Rate Act 2024 (legislation for implementing a global minimum tax under Pillar Two) was presented to Dutch parliament today together with the Memorandum of Understanding.

31 May 2023

The legislative proposal ensures that multinational groups and domestic groups with an annual revenue of EUR 750 million or more pay tax on their profits at an effective rate of at least 15% in each jurisdiction where they operate.

Back in October 2021, broad political agreement on the components of a global tax reform was reached by over 135 members of the G20/OECD Inclusive Framework (“Inclusive Framework”). Just before that year end (December 2021), the Inclusive Framework released the Pillar Two Model Rules and its corresponding commentary followed in March 2022. The Netherlands issued a first draft open to consultation in October 2022 (see our alert here). The European Commission proposed a directive on implementing this minimum level of taxation in the EU, and EU member states reached unanimous agreement on the proposal on 15 December 2022. Member States are obligated to implement the directive in their national legislation by 31 December 2023.

As expected, the proposed legislation closely reflects the OECD’s Pillar Two Model Rules as well as the EU’s Pillar Two directive. The latter however contains some adjustments to ensure conformity with primary EU law. As also follows from the Preamble of the EU Directive, the Commentary to the GloBE Model Rules should be used as a source of illustration and interpretation, which will also apply to the Dutch bill provided the Dutch rules align with the OECD Model Rules. The same goes for the Administrative Guidance that was issued.

The Dutch proposal – which is presented as a separate tax act and is thus not part of the Dutch Corporate Income Tax Act 1969 – contains an Income Inclusion Rule (“IIR”), Undertaxed Profits Rule (“UTPR”) and a Qualified Domestic Minimum Top-up Tax (“QDMTT”). The latter rule has been presented by the OECD and the EU directive as optional. It ensures that profits of low-taxed Dutch entities that are part of a Pillar Two group are first to be topped-up locally, thus preventing other group jurisdictions from taxing these undertaxed Dutch profits.

The bill will be debated by the House of Representatives in the coming months, and then by the Dutch Senate. The bill is intended to enter into force on December 31, 2023. It is proposed that the IIR and QDMTT will apply to in-scope groups per financial years starting on or after December 31, 2023. The UTPR will take effect one year later.

An important addition in the legislative proposal compared to the consultation draft of October 2022, is that the subsequent guidance issued by the OECD forms part of the proposal. This includes, among others, guidance around Safe Harbors and the Administrative Guidance (e.g., allocation of CFC taxes like the US GILTI regime). It is also acknowledged that the OECD will continue to issue guidance and the proposal effectively prescribes a dynamic way of introducing such guidance via regulations when it is released (e.g., guidance on permanent Safe Harbors).

From a practical perspective, it is clear from the legislative proposal and accompanying notes that the Netherlands is keen to take a 'frontrunner role' in the EU. This was also one of the reasons why the Dutch consultation draft of was issued even though there was no agreement between EU Member States at the time. This proposal builds on that relatively long runway to implementation by addressing input from various stakeholders and clarifying that a special team will be created within the Dutch tax authorities to focus on Pillar Two. According to the Memorandum of Understanding, taxpayers will have the possibility to discuss Pillar Two related questions with this team and upfront certainty may become possible.

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