Tax Plan 2021 - Memorandums of Amendment to Tax Plan 2021 submitted has been saved
Tax Plan 2021 - Memorandums of Amendment to Tax Plan 2021 submitted
On 5 October 2020, two Memorandums of Amendment to the Tax Plan 2021 were submitted. Among other things, they provide for a wage tax remittance reduction for investments in new business assets (“BIK”). In addition, stricter loss offset rules will be introduced.
8 October 2020
On 5 October 2020, the State Secretary for Finance submitted two Memorandums of Amendment to the Tax Plan 2021 to the House of Representatives. The two most important issues are the introduction of a Job-related Investment Credit (Baangerelateerde Investeringskorting, or “BIK”) and stricter loss offset rules.
Job-related Investment Credit (BIK)
The BIK is intended to stimulate new investments in previously unused business assets and applies to investment commitments entered into on or after 1 October 2020. Manufacturing costs and expenditures for improving existing business assets do not qualify for the scheme. An additional condition is that the investments involved must be fully paid for during the period from 1 January 2021 through 31 December 2022 and put into use within six months of that full payment at the latest. The BIK will be terminated on 1 January 2023, after which the available budget of EUR 2 billion a year will be used in another way to reduce employers' contributions.
The BIK’s design is that of a wage tax remittance reduction. The government thus wants to ensure that the investment credit only benefits companies whose wage bill is sufficient and, hence, offer employment. An additional advantage is that the scheme can also benefit companies that do not generate profits. A graduated scale has been opted for, to ensure that most of the available budget (approximately 60%) will benefit SMEs. According to this graduated scale a 3% discount applies up to an investment level of EUR 5,000,000 per calendar year and a 2.44% discount for the excess. An investment counts in the year in which the last payment was made.
The State Secretary further indicates that the BIK can be combined with other investment facilities, such as the small projects investment credit (kleinschaligheidsinvesteringsaftrek, or “KIA”), the energy-saving investment credit (energie-investeringsaftrek, or “EIA”), the environmental investment tax scheme (milieu-investeringsaftrek, or “MIA”) and the arbitrary depreciation of environmental investments (willekeurige afschrijving milieu-investeringen, or “Vamil”).
All applications are subject to a lower limit of EUR 1,500 per business asset and EUR 20,000 per application. Applications are submitted through the Netherlands Enterprise Agency (Rijksdienst voor Ondernemend Nederland, or “RvO”). Companies may submit applications only once per quarter. However, for reasons of implementation they cannot do so until after 1 September 2021. Decisions on applications should be taken within twelve weeks. After approval, the RVO will issue a BIK statement. Companies can then use the statement to apply the BIK in the wage tax returns for the year in which the statement has been issued. If it subsequently emerges that the reduction was granted incorrectly, RVO may issue a correction statement.
By the end of 2021, based on the applications submitted so far an upward or downward adjustment of the discount percentages for the year 2022 will be considered. This obviously depends on whether the scheme will even be adopted at all. The critical reception by the House of Representatives by no means makes this certain.
Loss offset in corporate income tax
Currently, losses in corporate income tax can be carried back for one year and carried forward for six years. There is no ceiling, though, on the amount of losses to be offset against the taxable profit of a year.
Effective from 1 January 2022, these rules will change because the government wants to introduce a lower limit in terms of corporate income tax liability for companies whose operations are profitable. Hence, losses in excess of EUR 1 million will only be eligible for set-off up to 50% of the taxable profit from now on, after this taxable profit has been reduced by the aforementioned EUR 1 million amount. The remaining loss does continue to be available for set-off in a later year. The restriction applies to both carry-forward and carry-back losses. On the other hand, the limitation in time with regard to loss carry-forward is abandoned. The carry-back period continues to be one year. The explanatory memorandum includes the following example:
A taxpayer incurs a loss of EUR 2,000,000 in 2020 (without the possibility of loss carry-back to 2019) and a EUR 3,000,000 loss in 2021. The total deductible losses amount to EUR 5,000,000. In 2022, the taxpayer has a EUR 4,000,000 taxable profit. Of the total losses available for set-off, an amount of EUR 1,000,000 is offset. For the remainder, the losses are offset up to an amount of 50% of EUR 3,000,000, i.e., EUR 1,500,000. The taxable amount after loss set-off is EUR 1,500,000 in 2022. By the end of 2022, EUR 2,500,000 in losses that have not been offset remains. They can be offset in a subsequent year.
The adjustments also affect losses incurred in financial years starting before 1 January 2022. For example, the entry into force provision states that losses incurred in financial years starting on or after 1 January 2013 can be carried forward indefinitely again. Older losses can be carried forward at the latest nine years. On the other hand, losses that have arisen, or will arise, in the financial years 2013 through 2021 are affected by the 50% rule, at least to the extent that they are set off against the taxable profit of financial years starting on or after 1 January 2022. This limitation likewise applies to the carry-back of losses incurred in 2022 against the 2021 taxable profit.
The offset of losses in the income tax does not change. The legislator justifies this choice by pointing out the rarity of income tax losses in excess of EUR 1 million. A limitation similar to the one in corporate income tax would thus have little effect.
Whether the new loss offset rules will be favourable or unfavourable strongly depends on companies’ individual loss positions. One thing is clear, though, the system will not become any simpler.