The Netherlands – the 2011 Budget Proposal – amendments

Except for the VAT amendment, which applies retroactively from October 1, 2010, the amendments are expected to apply as from January 1, 2010.

The most important amendments are summarized below:

1. tax exemption transformation of a company into a partnership
2. trade in companies with tax losses
3. application of lower VAT rate on renovation and repair of house
4. the 1.3% tax credit (heffingskorting) for investments in the public interest, investments in green funds and social ethical investments will be abolished.
5. losses incurred from direct investments in venture capital funds are no longer deductible
6. the VAT rate for performing arts, art, pieces of art, collector items and antiques will be increased from 6% to 19%
7. the insurance premium tax rate will be increased from 7,5% to 9,7%

1. Transformation of a company into a partnership

The law provides for a tax deferral if a company (subject to tax) is transformed into a partnership (members are subject to tax). Such a transformation is treated similar as a liquidation. If a company is dissolved, followed by the establishment of a new partnership by the former shareholders of the company, the realized “liquidation profits” would be taxable as well as the capital gains realized by the substantial shareholders in the company.

However, the Income Tax Act and the Corporate Income Tax Act provide for a tax-deferral with respect to those liquidation profits and the capital gains realized by substantial shareholders if certain conditions are met.

This facility includes the set up of a transformation reserve. This reserve reflects the deferred corporate income tax and the substantial shareholding tax claim.

As a result of the reduction of the corporate income tax rate from 24% to 20% for profits up to EUR 200,000 on a permanent basis, the calculation of the reserve will be amended. As from 2011 the transformation reserve will be equal to 50% of the exempt capital gains less 80 % of the exempt liquidation profits.

2. Trade in companies with tax losses

The Dutch corporate income tax act contains a measure against the trade in companies with tax losses. The buyer of such a company could contribute profitable activities in such a BV and consequently would not have to pay any taxes. This is prevented by the measure that losses from years before the change in shareholders (for 30% or more) cannot be compensated with the future profits (unless various other conditions are met), and visa versa.

However, this measure did not work for the compensation of losses in the year of the change in shareholders. So in that year losses could be compensated with the profits of the new activities of the new shareholders. In the 2011 Budget Proposal this leak is closed.

3. Application of lower VAT rate on renovation and repair of houses

In the 2011 Budget Proposal a VAT rate change is proposed for the renovation or repair of houses. In this amendment it is now clarified that for the determination of the applicable VAT rate it is decisive when the taxable event takes place.

Except for the VAT amendment, which applies retroactively from October 1, 2010, the amendments are expected to apply from January 1, 2010.

4. Insurance premium tax

The insurance premium tax will increase from from 7% to 9.7% and be applicable as from 1 March 2011.