Implementation of tax measures in coalition agreement | Deloitte

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Implementation of tax measures in coalition agreement

Both a memorandum of amendment to the 2018 Tax Plan and a new bill implement a number of policy intentions in the coalition agreement.

15 November 2017

Dutch version

Back to outline 2018 Tax Plan


Some parts of the coalition agreement presented on 10 October 2017 will take effect as early as on 1 January 2018. To this end, the government recently presented a memorandum of amendment to the 2018 Tax Plan. On top of that, a bill was submitted that provides for the gradual phase-out of the facility enabling tax deductions for non-existing or minor home acquisition debts. The following is a summary of the proposed changes.

Corporate income tax

No extension of first income tax bracket

The coalition agreement provides for a substantial reduction of corporate income tax rates. However, the gradual extension of the first income tax bracket up to EUR 350,000 ultimately, provided for in the 2017 Tax Plan, will be cancelled. For FY2018 this means that the first income tax bracket is capped at a taxable amount of EUR 200,000, instead of EUR 250,000 as previously proposed. The EUR 200,000 cap will be maintained in the coming years.


Innovation box

Profits realized using qualifying innovative activities are effectively taxed a rate of 5% in 2017, through application of the innovation box. The government proposes to raise this effective rate to 7% as of 1 January 2018. Transitional provisions will be introduced that provide for situations in which benefits received before that date have to be reversed at a later date. In the explanation to the memorandum of amendment, the legislature refers to the situation in which a claim for a patent or plant breeder’s right submitted in 2017 is rejected.

Payroll and income tax

Notional rental value for owner-occupiers

From 2019 onwards, home owners who have repaid their home acquisition debts will - on balance - pay income tax on the value of their house. Tax deductibles for non-existing or minor home acquisition debt (under the so-called Hillenregeling) will be phased out over a 30-year period: each year the benefit will be reduced by 3.33%. This means that in 2019, 96.67% of the positive difference between the notional rental value for owner-occupiers and the deductible expenses relating to owner-occupied property can be used as an additional deductible item. The government justifies this statutory change by arguing that this scheme increasingly weighs on the budget because the law requires new home acquisition debts to be repaid since 1 January 2013.


Increase of tax-free allowance in box 3

Effective 1 January 2018, the tax-free allowance in box 3 will be raised to EUR 30,000 per taxpayer (2017: EUR 25,000). This is intended to spare small savers. Also, more up-to-date figures will be used to calculate the yield on the savings part of a person’s capital. As a result, the fixed yield to be taken into account for small capitals in 2018 will likely be substantially lower.


Tax credits

The elderly person's tax credit will be EUR 160 higher as from 1 January 2019. However, the memorandum of amendment also provides for a gradual income-related phase-out of this tax credit to nil. The phase-out percentage is 15% for aggregate incomes that exceed about EUR 36,500. This system will replace the strict income threshold currently applied.

Another relevant change is that, as of 2019, disbursement of the employment credit and the income-related combination credit to the partner with the lower income will be phased out, as is already the case for the general tax credit. The government has chosen to use the phase-out percentage of the latter tax credit. This means that in 2019, only 26.67% of the total amount of these tax credits qualifies for disbursement. Contrary to the general tax credit, the phase-out of the employment credit and the income-related combination credit also applies to taxpayers who were born before 1 January 1963. The phase-out will be completed in 2023.

Excise duty

Tobacco excise duty

The tobacco excise duty is set to be raised by a total of EUR 200 million up to 2021. Apart from generating budgetary revenues, the new government uses this raise to promote its policy objective of a non-smoking generation. Also because of the expected behavioural effects, this will translate into a sizeable increase in excise duty rates.

Comments Deloitte

Cancellation of the Hillenregeling is the most striking element of this package. Unsurprisingly, as it had been announced in the coalition agreement. Considering the long phase-out period of 30 years, this cancellation will not have any serious financial impact in the first few years. Over time, however, the measure will start to hit the pockets of taxpayers who have repaid their home acquisition debts. The scheme was initially intended to encourage home-owners to accelerate mortgage repayment. However, various other rules have been introduced by now to do just that, such as mandatory annuity mortgage redemption and reduction of the maximum amount of mortgage loans for owner occupied property. Cancellation of the Hillenregeling obviously particularly affects the elderly, because they have often repaid their mortgage debt. So it is no surprise that especially pensioners’ parties oppose these measures. Moreover, we believe 30 years is quite a long period, so we would not be surprised if a considerably faster phase-out is decided on in a number of years.

On the surface the hike in the box 3 tax-free allowance to EUR 30,000 is quite spectacular, but this is hardly the case: the net benefit is a mere EUR 60 per year. Still, a major step has been taken in respect of the adaptation of fixed yields on savings, which used to be based on savings yields of five years ago. This has now been changed to one year to better reflect current interest rates.

Finally, we note that the cancellation of the proposed extension of the first corporate income tax bracket to EUR 350,000 eventually will especially disadvantage SMEs. After all, relatively small companies with lower profits proportionally benefit most from low CIT rates in the first bracket (2017: 20%). With the CIT cut mainly being funded by tax increases for businesses, the new package is bad news for SMEs on the whole too. On top of that, majority shareholder-directors face a rise of the box 2 tax rate to 28.5%.

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