On 13 January 2012 the Commission accepted a proposal regarding the broadening of the one stop shop for non-established taxable persons (both EU and non-EU) supplying telecommunication, broadcasting and electronic services to non-taxable customers.

As previously reported, from 2015, all telecommunications, broadcasting and electronic services are to be taxed in the Member State in which the non-taxable customer is established, or has his permanent address, or usual residence, regardless of where the supplier of the services is established.

However, as is currently the case for non-EU suppliers providing electronically supplied services to non-business customers in the EU, taxable suppliers would have the option to make use of a special scheme, i.e. the One Stop Shop. This would allow the taxable suppliers to only account for the VAT in the EU Member State in which they are established, without having to register for VAT in various other EU countries where their customers are located.

Austria - Limitation to the application of the reverse charge mechanism for non-established suppliers organizing fairs, exhibitions, conferences or congresses

With effect from 1 January 2012, non-established suppliers that organize a fair, exhibition, conference or congress in Austria and charge attendance fees will no longer be able to avail of the extended domestic reverse charge mechanism in Austria with respect to the event registration / attendance / entry fees.

Events with only selected attendees (events not open to the public) are not affected and therefore, the extended domestic reverse charge mechanism continues to apply on such event registration / attendance / entry fees.

Cyprus - Increase standard VAT rate by 2% from 1 March 2012

The standard VAT rate of Cyprus will increase to 17%, from 15%, and will come into force from 1 March 2012. There will be no change to the reduced VAT rates of 5% and 8%.

France - President Nicolas Sarkozy is to raise the VAT rate to 21.2%

The French President has announced an increase in the standard VAT rate from 19.6% to 21.2%, which will be due to come into force in October 2012, It has been approved by Parliament on 29 February 2012 and now still needs to be validated by the Constitutional Council.

France – Clarification on the application of the new reduced rate of 7%

The new reduced rate of 7% will apply to all goods and services that were previously subject to the 5.5% VAT rate, with the exception of foodstuff, gas and electricity, energy supply networks, and goods and services for disabled persons that will remain at the 5.5% VAT rate.

The increase in the reduced VAT rate is effective from 1 January 2012, except in relation to paper books which has been delayed to 1 April 2012.

The French Government have also clarified that prepared food ready for consumption (sandwiches, pizza) will be subject to the new 7% VAT rate.

Norway - VAT Updates

A significant change has been introduced in Norway in respect to VAT refunds through the refund scheme available to businesses involved in international transport services. Pursuant to a statement issued by the Ministry of Finance, companies without an establishment in Norway that carry out cross- border transport services are liable to register for VAT in Norway, subject to the standard registration thresholds.

In light of the above businesses will no longer be entitled to recover input VAT incurred in Norway via the refund scheme. Instead, Norwegian VAT incurred will only be deductible via local VAT returns by businesses who successfully register for Norwegian VAT purposes.

Despite this statement being announced by the Ministry of Finance only recently, the changes apply retrospectively with effect from 1 January 2010.

With effect from 1 January 2012 the online submission of VAT returns has become mandatory in Norway.  The Norwegian VAT authorities will no longer issue paper based VAT returns but in special cases taxable persons may be allowed to continue submitting paper returns if they can convince the tax authority that they cannot make electronic filings due to practical considerations.

The VAT rate on nutrients/foodstuffs has been increased from 14% to 15% with effect from 1 January 2012.

UK - Registration threshold to become NIL

Effective from 1 December 2012, non-established businesses will be required to register immediately if they make taxable supplies in the UK as the UK VAT registration threshold, currently £73,000, will no longer apply to non-established businesses.

Author: Tamás Bajor, Vienna Consult Kft., www.viennaconsult.hu

Proposal from Czech Finance Minister, Miroslav Kalousek, to bring in a single 19% higher VAT rate from start 2012 has been defeated. The proposal to rush in a higher rate of VAT than under a previously agreed timetable was challenged by junior member of the coalition. Under the existing timetable, two rates of higher VAT at 20 percent and 14 would be introduced next year with a single 17.5 percent rate coming in 2013. Kalousek had been proposing a single 19% higher rate to come in from start of 2012.

France - New 2011 taxation rules for conference and event organisers in France

On the 28 March 2011 the French Tax Authorities published an official guideline on the new VAT place of supply rules for event related services
This guideline is clarifying the impact of the VAT changes that were introduced by the Directive 2008/8/EC dated 12 February 2008 and came into force on the 1st January 2011, and deals in particular with services supplied in connection with conferences, congresses, trade fairs, etc. The information in this administrative guidance can be very useful for taxable persons who are either attending, or organising events in France. It brings some level of response to the uncertainty created by the new EU VAT taxation rules in this area, and also sheds some light on the implementation of those rules in France by featuring specific examples and solutions for various situations.

The information in this guideline is focusing the following items:

• VAT place of supply rules for services in respect of admission to an event
• VAT place of supply rules for event organisation services
• VAT place of supply rules for rental of exhibition space
• VAT place of supply rules for a complex package of services supplied within the frame of an event

However this guideline is also dealing with other questions such as VAT taxation rules for services rendered by Professional Congress Organisers (”PCO”) or the VAT place of supply rules for training services.

Greece - VAT rate on food and drinks supplied for immediate consumption to increase from 1 September 2011

The VAT rate applicable to non-alcoholic beverages and to the supply of food for immediate consumption in restaurants, as well as on some connected services is to increase from 13% to 23% (16% in the Agean Islands) from the 1st of September 2011.

This change will not affect food and beverages supplied in canteens used by medical, educational or social welfare organisations. Also, this change will not affect food intended for mass consumption that are ready to eat and are sold in packages in the restaurant/take-away.

Hungary - Hungary’s VAT regulatory practices not compliant with EU VAT Directive

The European Court of Justice found that Hungary’s practices are incompatible with EU law and need to be modified. The current situation allows taxable persons to deduct the input VAT of their acquisitions from the amount of VAT payable. If the amount that is deductible is greater than the VAT payable the excess can then be reclaimed, except where the taxpayer has not paid the consideration.

This means that for certain taxpayers the opportunity to reclaim VAT is postponed for several tax periods, this was considered by the ECJ in its decision on 28th July 2011 to be  contrary to the EU VAT Directive.

Ireland - Introduction of a new reduced VAT rate of 9%

The Minister for Finance has announced that a second reduced VAT rate of 9% will be introduced in respect of certain goods and services (mainly related to tourism) for the period 1 July 2011 to 31 December 2013 under the “Jobs Initiative 2011”. The new VAT rate is effective from the 1st of July 2011.

Ireland - Update on the deduction rules for Car related expenses

The information used to prepare this update is contained in the VAT Leaflets published on the Irish Revenue website: http://www.revenue.ie/en/tax/vat/index.html

1. Purchase of cars

The purchase of a car in Ireland is subject to Irish VAT. VAT incurred on this purchase is usually not deductible. However, a VAT registered trader may deduct VAT if the car is used 100 % for business and if it belongs to category B or C, i.e. commercial vehicles.

There is an exception to this rule, Motor dealers and driving schools may recover VAT incurred on the purchase of a wider range of vehicles.
From the first January 2009 a trader can also recover some of the VAT incurred in relation to the purchase of category A vehicles, i.e. saloons, estates, hatchbacks, convertibles, etc. However there are conditions;

• Vehicles must have been registered on or after the 1st Jan 2009
• CO2 emissions must be less than 156g / km (Co2 emission bands A, B or C)
• At least 60% of the vehicle’s use must be for business
• The car must be used for business purpose for at least 2 years

Where those conditions are fulfilled it is possible to recover up to 20% of the VAT paid.

2. Hire and leasing of cars

VAT is recoverable on the hire and leasing of cars under the same conditions than above, i.e. full deduction of VAT may be possible if the car is category B or C and 100% used for business purposes and up to 20% deduction is possible for cars belonging to category A where the conditions described above are fulfilled.

3. Repairs and servicing of cars

VAT is recoverable on repair and servicing of cars under the same conditions than above, i.e. full deduction of VAT may be possible if the car is category B or C and 100% used for business purposes and up to 20% deduction is possible for cars belonging to category A where the conditions described above are fulfilled.

4. Petrol and diesel

VAT registered traders are not entitled to recover VAT incurred on the purchase of petrol.

VAT is fully recoverable on diesel by VAT registered traders if the vehicle is used 100% for business.

5. Toll bridges and car parking

VAT registered traders are entitled to deduct VAT incurred on toll bridges and “off-street” car parking. VAT should be fully recoverable by VAT registered traders if the vehicle is used 100% for business. VAT on “on-street” car parking is exempt.

The Irish revenue has created categories of vehicles ; A, B, C, D, M, M1, M2 etc. only commercial vehicles in categories B and C open right to VAT deduction, Category A is for vehicles such as estates, saloons, convertibles, etc., that are not designed as commercial vehicles.

United Kingdom - HMRC will target businesses who have not registered to pay VAT

HMRC has launched a campaign to target businesses that are trading above the VAT registration threshold (73,000 GBP) but are not registered for VAT.

Under the terms of the VAT Initiative, those who have not registered to pay VAT can come forward any time up to 30 September to tell HMRC that they want to take part. If they make a full disclosure, most face a low penalty rate of 10 per cent on VAT that has been paid late. After 30 September, using information pulled together from different sources, HMRC will investigate those who have failed to come forward. Substantial penalties or even criminal prosecution could follow. HMRC uses new technology and legislation to gather and analyse data, from internal and external sources, to identify people who should come forward.

United Kingdom - Businesses call for VAT cut

Fears that the UK economy has flatlined in the nine months since October have led to the Federation of Small Businesses (FSB) to call for yet another VAT rate change urging the government to drop VAT to 5% in certain sectors. While this approach has been adopted in other jurisdictions such as France, Germany and most recently Ireland there is little evidence of a positive impact and in some cases questions over whether these reductions were being passed on to end consumers at all.

United Kingdom - HMRC continue to move VAT on-line - Consultation Document Released

HMRC has just released a consultation document covering the changes to the operation of VAT and moving of more transactions on-line. HMRC proposes that from 1st of April 2012, for businesses with a turnover below £100,000, it will be compulsory to file VAT returns on-line and make electronic payment of any VAT due. On-line filing is currently optional for these smaller businesses, however, all new businesses that registered for VAT since 1 April 2010 and larger businesses, with a turnover of £100,000 or more are obliged to file and make VAT payments on-line.

Author: Tamás Bajor, Vienna Consult Kft., www.viennaconsult.hu

Here are typical issues often misunderstood:

1. Very often foreign employees coming to Germany think that their foreign source income is not subject to German income taxation. This is a misjudgement. Foreign source income is either taxable in Germany or it effects the progressive German income tax rate. In both cases the income has to be declared in the German income tax return.
2. The calculation of foreign source income has to follow German legal requirements. This may require a recalculation of foreign source income. This is especially the case for business and rental income (for example recalculations of depreciations or capital allowances).
3. Foreign income taxes including withholding taxes can be deducted against German income tax if foreign source income is taxed in Germany.
4. It is also not correct to believe that being tax resident in Germany is unfavourable compared to a situation where somebody receives German based salaries as non-resident. This is due to the fact that non-residents cannot claim various allowances and personal expenses. A careful tax planning is advisable.
5. Germany has the reputation of being a high tax jurisdiction. This may be the case for individuals with high income. The tax burden on lower or average income is endurable. And German tax law is less strict concerning the deduction of income related expenses than most neighbouring countries. Additionally it provides a wide range of personal allowances and a liberal acceptance of private expenses. Foreign individuals are often surprised by the relatively low tax burden on average income. The real problem is social security liability if applicable. The social security contributions are one of the highest in Europe. Individuals coming to Germany should always seek advice on whether or not they can avoid German social security contributions.
6. Foreigners often think that personal payments to foreign organisations or insurance companies cannot be deducted. That again is a wrong impression. Payments to foreign pension schemes, private health insurance, private accident insurance, personal liability insurance etc. may very well be deductible in Germany.
7. A special problem arises from employment income related to stock options. Respective benefits will be taxed in Germany under certain conditions. Taxed will be the difference between the value at the time of purchasing the stocks and the value at the time when the options have been granted. For the allocation of taxation rights the time between granting the options and the vesting time (vesting period) is applicable. This means that if somebody worked for an employer in the vesting period in different countries he may have to pay taxes in these countries. Example: The vesting period was 2 years. For one year employee worked in the USA and for the other year he worked in Germany. Than half of the benefit will be taxed in the USA and the other half in Germany.

We have developed a checklist “Foreign citizens working in Germany – Required documents and information” to file a German income tax return. The checklist can be ordered free of charge at our German office (www.iapa-online.com/hamburg-germany).

The most important subsidy agency in the Netherlands is AgentschapNL, which is based in The Hague. The latter organization is responsible for the execution of most of the schemes available in the Netherlands. In addition, there are also a number of important regional and provincial schemes available, as well as a number of international schemes offered by the Ministry of Foreign Affairs, the Ministry of Economic Affairs and Brussels.

This section will outline a number of the schemes that are currently available. Obviously this is not an exhaustive list, so we recommend that you contact your consultant for more detailed information.

Innovation subsidies

WBSO (Wet Bevordering Speur & Ontwikkeling)
WSBO stands for the Dutch Research and Development Act. Technological innovation is extremely important. The competitor never rests. The WSBO will help you if you wish to renew your technical processes or develop new technical products or software. The WBSO is a tax incentive scheme that forms part of the compensation of salary and wage expenditures for Research and Development work.

Subsidieregeling Internationaal Innoveren (Subsidy for International Innovation)
This regulation promotes cooperation between Dutch companies and foreign companies in emerging markets, Eureka countries and industrialised countries. By working together with local parties, Dutch companies can gain access to these markets. The maximum contribution per project amounts to € 500,000 for innovation projects in emerging markets and € 750,000 for innovation projects with Eureka or industrialised countries. The following countries are considered emerging markets: Brazil, China, Indonesia, Malaysia, Thailand, South Africa, India and South Korea.

Regional Subsidies

Depending on the location of your place of business, it is also possible to obtain subsidies from various provinces and regional authorities. For example, the Province of Brabant focuses mainly on technological innovation and projects an international profile in that field. The Province of Overijssel is extremely active in the reinforcement of agriculture through innovation, whereby its main concern is to keep the sector viable. Utrecht is oriented to creativity within the ICT sector. Furthermore, a lot of provinces offer subsidies in the area of sustainable development and sustainable energy.

Investments

MIA (Milieu Investerings Aftrek) (Environment Investment Deduction Scheme)
The purpose of the Environment Investment Deduction scheme (MIA) is to stimulate investment in environmentally friendly capital equipment. Companies that invest in the environment are entitled to additional tax deductions at a percentage of the investment cost. The environment investment deduction scheme is only available for capital equipment listed on the Environment List 2010 (Milieulijst 2010), which is updated on an annual basis.

EIA (Energie Investerings Aftrek) (Energy Investment Deduction Scheme)
The purpose of the Energy Investment Deduction scheme (EIA) is to stimulate investment in energy-saving technology and sustainable energy, i.e. so-called energy investments. Companies that invest in the energy industry are entitled to additional tax deductions at a percentage of the investment cost. The energy investment deduction is only available for capital equipment that complies with the specified energy performance requirements. The energy performance requirements and the capital equipment that are subject to the energy investment deduction are available in the Energy List 2010 (Energielijst 2010), which is updated on an annual basis.

BBMKB (Besluit Borgstelling MKB Kredieten) (Credit Guarantee Scheme for SMEs)
The purpose of the Credit Guarantee Scheme for SMEs (BBMKB) is to stimulate credit provision to small and medium-size enterprises (SME or MKB in Dutch). The scheme was designed for companies with a maximum of 100 employees and includes most professional entrepreneurs. If the entrepreneur is unable to provide the bank with sufficient security or collateral to secure a loan, the bank can appeal to the BBMKB for the necessary guarantees. The government will then, under certain conditions, provide the security for part of the credit amount. This reduces the level of the bank’s risk exposure and increases the creditworthiness of the entrepreneur.

KleinschaligheidsInvesteringsAftrek (Small-scale Investment Deduction)
The Small-scale Investment Deduction entitles the entrepreneur to deductions from investments in capital equipment between € 2,200 and € 300,000 in 2010. You invest in capital equipment in the year in which you buy it and therefore incur a payment obligation. The investment deduction can be applied in the year in question. If you do not intend to use the capital equipment in the year in which the investment is made, then part of the investment deduction is sometimes carried forward to the next year.

Environment and Energy

Energie Onderzoek Subsidie (EOS) (Energy Research Subsidy)
The purpose of the Energy Research Subsidy (EOS) is to increase the quality level of research and knowledge in the Netherlands by stimulating the development of new technology with the ultimate aim of realizing sustainable energy supply. The aim of the EOS programme is to broaden the knowledge base for energy efficiency and sustainable energy across the Netherlands. The knowledge forms the foundation for affordable, reliable and cleaner energy supply in the future. The EOS covers the full process from idea to market introduction.

Milieu & Technologie (Environment & Technology Subsidy)
Netherlands-based industrial small and medium-size enterprises (SME) qualify for subsidies for projects that contribute to the development and application of innovative environmentally oriented processes, products and services that are new to the Netherlands. The subsidy is known as the ‘Environment and Technology Subsidy’. The projects must focus on the analysis and exploration of market opportunities (TeMa component: ‘Technology in the Market’), or the project must be focused on the research, development, testing and first application of environmentally oriented innovations (ToeP component: Application in Practice’). Stimulering Duurzame Energieproductie (SDE) (Stimulation of Sustainable Energy production) The Dutch Ministry of Economic Affairs wants to support both companies and individuals who want to produce sustainable energy. Anyone who wants to produce energy in a way that does not adversely affect the environment, can make use of this regulation. The production of sustainable energy is not always cost-effective. The SDE compensates the difference between the cost price of regular energy and sustainable energy over a period of 12 or 15 years.

Foreign Markets

Private Sector Investeringsprogramma (PSI) (Private Sector Investment Programme)
The purpose of the Private Sector Investment Programme (PSI) is to contribute to the sustainable economic development of a number of developing countries with the use of the knowledge and capital available in Dutch companies and institutions. If you are planning to invest in a developing market, but the associated risks are excessively high, PSI might offer a suitable solution. The scheme could contribute to (partial) compensation of your investment costs. The programme applies to selected countries in Africa, Latin America, Asia and Eastern Europe. Foreign companies from a selected number of countries can also apply for the PSI.

Prepare2Start
The Prepare2Start programme helps Small and Medium-size enterprises (SME) in taking the first steps in exporting. The purpose of the scheme is to support SMEs with limited or no experience in export when entering new or practically new foreign markets. The support is available in the form of advice and supervision when setting up and implementing an internationalization plan, as well as a contribution towards the cost of a number of activities specified in the plan. The Prepare2Start is applicable to all countries in the world.

Author: Harry den Hond, Schagen Lensen & van Krieken Accountants, www.slk.nl

The following are a few of the benefits offered by the Dutch tax system:

• The Netherlands does not charge tax at source on interest and royalties.
• In most cases all the profits that the Dutch parent company receives from foreign subsidiaries are exempted from tax in the Netherlands (participation exemption).
• The Netherlands offers attractive tax-free compensation in the form of the 30% scheme for all foreign personnel who are temporarily employed in the Netherlands.

The Dutch tax system can be divided into taxes based on income, profit and assets, and cost price increasing taxes.

Below you find a summary regarding other taxes and duties.

Dividend tax

Companies often pay out profits to the shareholders in the form of dividends. The following are further examples of dividend situations:

• Partial repayment of the moneys paid up on shares by shareholders;
• Liquidation payments above the average paid-up equity capital;
• Bonus shares from profits;
• Constructive dividend. This concerns situations in which the shareholder sells something to the company at a lower value than the prevailing value in the market. In other words, this works to the company’s advantage;
• Compensation received for a cash loan, where the loan was taken out under such conditions that it effectively functions as corporate equity capital.

The company (liable for withholding the tax) that pays out the dividend is bound to withhold the dividend tax and to pay it to the tax authorities.

Exemption
No tax is withheld, among others, in the following situations:

• Where, in inland relationships, benefits are enjoyed from the shares, profit-sharing certificates and cash loans of participations to which the participation exemption applies;
• If a Dutch company pays out dividends to a company established in a member state of the European Union and the company holds at least a 5% share of the Dutch company;

Tax rate
The tax rate for dividends is 15%. The tax is withheld by the company that pays out the dividends and pays it to the tax authorities. The dividend tax withheld serves as an advance tax payment on income and corporate income tax.

The Netherlands has signed tax treaties with various other countries, as a result of which a lower tax rate will apply in many instances.

Prevention of double taxation

Residents of the Netherlands and companies that are registered in the Netherlands must pay tax on all revenue generated worldwide. This could result in any given income component being taxed both in the Netherlands and abroad.

To prevent this kind of double taxation, the Netherlands has signed tax treaties with many other countries. The treaties are largely modelled on the OESO Model Treaty for the prevention of double taxation.

If an income tax component is nevertheless double-taxed as income or corporate income tax, the taxed amount is reduced based on the exemption method. The method entails a reduction of the Dutch tax related to the foreign income. The exemption on the income tax is calculated per box.
Double taxation of dividend payments and interest payments and royalties is prevented with the use of the settlement method. The use of this method means that the Dutch tax is reduced by the amount of tax charged abroad.

In certain situations it is also possible to deduct the foreign tax directly from the profits or as costs related to income.

The 30% rule

Foreign employees who come to work in the Netherlands temporarily qualify for the 30% Rule under certain circumstances. The rule entails that the employer is entitled to pay the employee a tax-free remuneration to cover the extra costs of their stay in the Netherlands (extraterritorial costs). The disposition is only valid for a maximum period of 10 years, and the situation can be reviewed after 5 years. The compensation amounts to 30% of the salary, including the compensation, or 30/70 of the salary excluding the compensation. The condition is that, based on this salary, the employee is not entitled to prevention of double taxation. If the employer reimburses more than the maximum amount, then this is additional salary before salary deductions.

Conditions for qualification for the 30% rule
1. The employee has a permanent job;
2. The employee has a specific expertise that is hardly or not at all available in the Dutch employment market. This is, in any event, the case if the employee is employed in the mid or upper levels of the management of an international company and is sent to the Netherlands on a rotational basis. The employee must have been employed by the company for a period of approximately 2.5 years.

Extraterritorial costs
The extraterritorial costs consist of the following, among other things:

• extra cost of living because of the higher cost of living in the Netherlands than in the country of origin (cost of living allowance);
• the cost of an introductory visit to the Netherlands, with or without the family;
• the cost of the application for a resident’s permit;
• double housing costs, because the employee will continue his or her residence in the country of origin.

The following aspects are not covered by the extraterritorial costs and can therefore not be compensated or granted untaxed:

• the overseas posting allowance, bonuses and comparable compensations (foreign service premium, expat allowance, overseas allowance);
• loss of assets;
• the purchase and sale of a house (reimbursement of house purchase expenses, agent’s fee);
• the compensation for higher tax rates in the Netherlands (tax equalization).

If the employee has children, the employer is entitled to offer the employee tax-free compensation for school fees at an international school in addition to the 30% rule. Other professional costs can be compensated untaxed based on the normal rules applicable to the Wages and Salaries Tax Act (Wet op de loonbelasting).

If the extraterritorial costs add up to more than 30%, then the actual costs that have reasonably been incurred can also be compensated tax-free. It must however be possible to demonstrate that the costs incurred are justifiable.

To be able to make use of the 30% rule, the employer and the employee must jointly submit an application to the Foreign Office of the tax authorities in Limburg (Belastingdienst/Limburg/kantoor Buitenland). If the application is approved, the tax authorities will issue a decision.

The decision is valid for a maximum period of 10 years. Should the request be made within four months after the start of employment as an extraterritorial employee by the employer, the decision shall be retroactive to the start of employment as an extraterritorial employee. If the request is made later, the decision shall apply starting the first day of the month following the month in which the request is made.
The ten-year period is reduced by previous periods of stay or employment in the Netherlands.

In addition, the employee can also submit an application for registration as a partial foreign taxpayer for tax purposes in the Netherlands. This entails that he will be entered as a foreign taxpayer in Box 2 and 3.

Value Added Tax (VAT)

The Dutch turnover or value added tax system is based on the European Directive concerning tax on added value. Tax is due the Added Value (VAT or ‘BTW’ in Dutch). This entails that tax is charged at each and every stage of the production chain and in the distribution of goods and services. Businesses charge one another VAT for goods and / or services provided. The company that charges the VAT is required to pay the VAT amount to the tax authorities. If a company is charged VAT by another company, it is entitled to deduct the VAT amount from VAT due on the company’s part. By doing so, the system ensures that the end user is effectively responsible for paying the VAT. Foreign companies that perform taxed services in the Netherlands are in principle also liable to pay VAT. Those companies, too, will be required to pay the VAT due in the Netherlands and will therefore also be able to claim the VAT invoiced to it by Dutch companies.

Exemptions
Not all good and services in the Netherlands are subject to VAT. The following services are VAT exempt: medical services, services provided by educational institutions, most banking services, insurance transactions, services performed by sports organizations and property rentals. Companies that provide exempted services are not entitled to charge VAT for their services. In addition, they are also not entitled to claim the VAT charged to them for goods and services. Companies that perform both VAT liable and VAT exempt services will assign VAT to those specific services on which VAT is due.

The VAT system in the internal European market
Europe has recognized the existence of an internal European market since 1 January 1993. From that date on, the European Union has recognized the free traffic of goods, persons, services and capital in the EU. Performances within the European Community are referred to as the intracommunity supply and acquisition of goods and intracommunity services. VAT is charged based on the destination country principle. This means that goods that cross the border to another EU country are taxed in the destination country. With effect from 1 January 2010 there is a new main rule for business to business services (B2B). These are from now on usually taxed in the country where the customer is established or has a permanent establishment.

Tax rates
The general VAT tax rate is 19%. The Netherlands also has a low VAT rate of 6%. Goods and services falling under the low tax rate are specified in Table 1 of the Turnover Tax Act (Wet op de omzetbelasting 1968). This applies, among other things, to foodstuffs and medicines. The zero rate is mainly intended for goods exported to outside the EU and for goods exported to other EU members states.
All companies are bound to submit VAT declarations. If the company also supplies goods or services to elsewhere in the European Union, it is also bound to fill in the Opgaaf Intracommunautaire Prestaties (Intracommunity Supplies) tax form.

Excise and other Duties

Excise duty
The Netherlands charges excise duties on alcohol-containing beverages, tobacco, fuel and other mineral oils. Manufacturers, traders and importers pay excise duties to the tax authorities. The Excise Duty Act (Wet op de accijns) in the Netherlands is fully harmonized with the applicable EU directives.

Environmental taxes
The Netherlands charges the following environmental taxes:

• Groundwater tax
• Tax on mains water
• Waste tax (Afvalstoffenbelasting)
• Fuel tax
• Energy tax
• Packaging tax

Groundwater tax
The taxes are paid by companies that extract groundwater. The amount of tax due is based on the amount of cubic metres of groundwater that is extracted by the company. The rate is € 0.1951 per m3.

Tax on mains water
The Netherlands charges tax on mains water. All companies and households pay tax on a maximum amount of 300 cubic metres of water per connection per annum. The rate is € 0.157 per m3.

Waste tax (Afvalstoffenbelasting)
Waste tax is charged on all dumped waste. The rate is € 107.49 per 1,000 kg of dumped waste. The rate for non-burnable waste and waste that should not be incinerated is subject to a rate of € 16.79 per 1,000 kg.

Fuel tax
Fuel tax is paid by the producers and importers of coal. The rate is € 13.42 per 1,000 kg coal.

Energy tax
The purpose of energy tax is to reduce CO2 emissions and to reduce energy consumption. The energy tax is charged to the user of the energy (natural gas, electricity and certain mineral oils). The rates are related to the amounts used, whereby the rates are progressively reduced as consumption increases.

Packaging tax
With effect from 1 January 2008 the Netherlands has introduced a new tax: the packaging tax. The principal pays the tax. The tax is also payable by people who for the first time market a packaged product or an (empty) packaging together with a product. For each taxpayer there is a tax threshold of 50,000 kg. The packaging tax is only paid on the amount of packagings that exceed the threshold. Businesses who make available or market less than 50,000 kg of packagings are not affected by the packaging tax and also do not have to notify the Dutch Tax Authorities.

Author: Harry den Hond, Schagen Lensen & van Krieken Accountants, www.slk.nl

Note: This regime only applies to electronic books and records. Paper documents such as annual financial accounts, opening balance sheets but also in- and outgoing invoices have to be kept in Germany. This restricts the possibilities to transfer the entire bookkeeping abroad.

The following requirements apply:

• The taxpayer has to inform German tax authorities where electronic bookkeeping is conducted. If a service provider is assigned to do the bookkeeping his name and address has to be reported to the tax authorities.
• The taxpayer has to fulfil special obligations in regard to participation in tax audits and documenting business transactions.
• Tax authorities must have full access to all electronic books and records.
• Taxation shall not be negatively affected by the transfer of electronic books and records abroad.

German tax authorities may grant permission to transfer electronic bookkeeping abroad. The application has to be made in writing. The following information is required:

• Detailed enumeration and description of electronic books and records to be transferred abroad
• Description of the bookkeeping process
• Description of facts which allows the tax authorities to verify above mentioned requirements

Foreign Service provider who is conducting the bookkeeping for a German company has to follow German accounting standards. Provisions of German commercial and tax law have to be considered. And he has to follow the special regulations of the Principles of proper IT-based Accountancy Systems (Grundsätze ordnungsmäßiger DV-gestützter Buchführungssysteme).

German tax authorities have the right to audit data produced by means of data processing systems (EDP systems). There are three forms of data access:

• Audit of stored data by using the taxpayer’s EDP system (access form: Z 1)
• Computer evaluation by instructing staff of the tax payer using EDP system (access from: Z 2)
• Demanding a data medium such as a CD with tax relevant data, documents and records (access form: Z 3)

In practice only access form Z 3 is used by tax inspectors when auditing smaller companies. The special rules of the Principles of Data Access and Auditability of Digital Records (GDPdU) have to be followed by the foreign service provider.

If the company and/or its service provider is not complying with the requirements under this regime fines in a range between € 2,500 and € 250,000 may be imposed. And the tax authorities have the right assessing taxes based on estimates.

The US government thinks that there is about $ 700 billion dollars of tax revenue that it is missing out on due to individuals and businesses failing to properly report their US taxes and hiding money in foreign bank accounts. The IRS is actively looking for individuals with over $ 50,000 held outside the US and is finding and prosecuting these individuals. In an effort to encourage US citizens living abroad to “catch up” on their taxes and to properly report their foreign bank accounts the IRS recently announced its Second Voluntary Disclosure Initiative. This is good news for anyone who has not been filing their taxes, reporting their bank accounts or both.

The first Voluntary Disclosure Program ended in 2009 and since then people who did not disclose their overseas bank accounts and other liquid assets were in a state of limbo as there was no official policy for how they would be dealt with (i.e. fines, criminal prosecution or both). The new initiative clearly defines the penalties and the requirements for properly disclosing your foreign accounts and catching up on your tax filings. The 2011 Offshore Voluntary Disclosure Initiative is the best opportunity since 2009 for people to catch up on their taxes and once again become compliant with the IRS. The penalties are higher than in 2009, but the IRS policy is not to reward people for not reporting and the IRS has stated that penalties will only increase in the future. This means that now is the time to catch up on your US taxes and report all of your foreign bank accounts.

In order to take advantage of the Voluntary Disclosure Initiative you will need to completely catch up by August 31st 2011 so you should contact your tax advisor immediately to get started. The terms will require you to file for up to 8 years and to disclose your foreign bank, brokerage and savings accounts and the balances for up to 8 years. You will also need to pay any late taxes, penalties and fines by August 31st 2011.

Finally, some key dates you should be aware of:

Whether you have been filing your taxes each year or iyou have recently moved abroad, you should be aware of the important tax dates for 2011 (the 2010 US tax year). They are:

• April 18th - US Federal Tax deadline, also the date any taxes need to be paid by in order to avoid penalties
• Deadline for State Taxes varies state by state (some have also extended to April 18th, some keeping to April 15th deadline)
• June 15th - Tax deadline for US Expats – expats receive an automatic 2 month extension (please note: if you owe money, interest accrues as of April 18th)
• June 30th - Deadline for the Foreign Bank Account Report form reporting foreign accounts - there is no extension for this
• August 31st- Deadline for 2011 Offshore Voluntary Disclosure Initiative
• Oct 15th - final tax deadline if you have filed for an extension before June 15th

The US tax code can be very confusing and is quite complex so we strongly recommend speaking to a US expat tax expert before getting started. This will greatly improve your chances of avoiding double taxation and getting hit with a large US tax bill.

All information was correct at the time this article was written (February 2011).

Author: David McKeegan, Director and Founder of Greenback Expat Tax Services, a US Income Tax provider that specializes in tax preparation for Americans who live abroad

• University of Hamburg (Course of studies: Master of International Taxation)
• Universita die Roma Sapienza (Course of studies: Master in Pianificazione Tributaria Internazionale)
• Guardia di Finanza – Corso Superiore die Polizia Tributaria

The seminar will cover the following topics:

• Transparancy and Exchange of Information with “Tax havens”
  • The legal Framework for Exchange of Information
  • Domestic Measures against the improper use of tax havens
• The Domestic Legislation against Tax Havens
  • Constitutional , EU and International Framework of Mutual Assistance in Tax Matters
  • The Single Instruments (New Rules and Critical Issues)

Co-ordinators are the professors Gerrit Frotscher and Pietro Selicato.

Speakers from the IAPA are involved and will cover the following topic:

Domestic Measures against the improper use of tax havens

The following are a few of the benefits offered by the Dutch tax system:

• The Netherlands does not charge tax at source on interest and royalties.
• In most cases all the profits that the Dutch parent company receives from foreign subsidiaries are exempted from tax in the Netherlands (participation exemption).
• The Netherlands offers attractive tax-free compensation in the form of the 30% scheme for all foreign personnel who are temporarily employed in the Netherlands.

The Dutch tax system can be divided into taxes based on income, profit and assets, and cost price increasing taxes.

Below you find a summary regarding corporate income tax.

Corporate income tax

Corporate income tax is charged to legal entities of which the capital is partially or fully divided into shares. Examples of such legal entities are the Dutch NV and BV. Companies based in the Netherlands are taxed on the basis of the companies’ local revenues. The question as to whether a company is in effect based in the Netherlands for tax purposes is assessed on the basis of the factual circumstances. The relevant criteria are issues such as where the actual management is based, the location of the head office and the place where the annual general meeting of shareholders is held. Entities set up under Dutch law are deemed to be established in the Netherlands. Certain entities not established in the Netherlands that receive income from the Netherlands are foreign taxpayers. A foreign taxpayer receives profit from a Dutch enterprise if the enterprise is operated in the Netherlands using a Dutch permanent establishment or permanent representative.

Tax base and rates
Corporate income tax is charged on the taxable profits earned by the company in any given year less the deductible losses. The following are the applicable corporate income tax rates for 2010:

If a company incurred a loss in any given year, that loss can be deducted from the taxable profit of the previous year or from the taxable profit over nine subsequent years. This loss set-off has been temporarily extended. Losses may be carried back three years. In exchange for this the loss carry forward of nine years is cut to six years. This temporary measure applies for the tax years 2009 and 2010.

The company profits must be determined on the basis of sound commercial practice and on the basis of a consistent operational pattern. This entails, among other things, that as yet unrealized profits do not need to be taken into consideration. Losses, set against them, may be taken into account as soon as possible. The system of valuation, depreciation and reservation that has been chosen must be fiscally acceptable and, once approved, must be applied consistently. The tax authorities will not subsequently accept random movements of assets and liabilities.

In principle all business expenses are deductible when determining corporate profits. There are however a number of restrictions with respect to what qualifies as business expenses.

Valuation of work in progress and orders in progress
In work and/or orders in progress profit taking may no longer be postponed. The constant part of overheads must be capitalised and a cumulative profit must be taken. The same applies for orders in progress.

Limited depreciation on buildings
As of 2007, certain restrictions apply with respect to the depreciation of business buildings. Effectively, this means that the taxpayer is entitled to depreciate the building until the book value has reached the so-called base value. The base value is determined with reference to the WOZ value (see above). Based on the latter regulations, the value of a building is determined, to the greatest extent possible, on the basis of its value in the economic environment. The base value for owner-occupied buildings is 50% of the WOZ value. The base value for buildings used as investments is 100% of the WOZ value.

Arbitrary depreciation
In the Netherlands in principle no more than 20% per year of acquisition or production costs may be depreciated on operating assets, other than buildings and goodwill. The minimum depreciation period is therefore 5 years. Under certain conditions goodwill can be depreciated by a maximum of 10% per year.
As a temporary measure, because of the economic crisis, companies may depreciate their investments made in the 2009 or 2010 over 2 years (50% per year). Depreciation is possible as soon as an investment commitment is entered into or production costs are incurred in 2009. The amount of arbitrary depreciation may not be higher than what was paid by way of investment commitment or incurred by way of production costs.

Excepted operating assets are:

• Buildings, earth, road and hydraulic engineering works, animals, intangible fixed assets (such as software), mopeds, motorbikes and passenger cars. However arbitrary depreciation may be made on taxis and very economical passenger cars.
• Operating assets intended primarily to be made available to third parties.

Participation Exemption
Participation exemption or substantial holding exemption is one of the main pillars of corporate income tax. The scheme was introduced to prevent double taxation. Profit distribution between group companies is exempted from tax.

A participation refers to a situation where a company (the parent company) is the owner of at least 5% of the nominal paid-up capital of a company that is based either in the Netherlands or abroad (the subsidiary).

Under the participation exemption, all benefits derived from the participation are tax exempt. The benefits include dividends, profits and losses in the sale of the participation and acquisition and sales costs. If the value of the participation falls due to losses incurred, devaluation by the parent company is in principle not permitted. Losses arising on liquidation of a participation can under certain conditions be deducted.

In principle, participation exemption does not apply if the parent company or subsidiary is an investment institution. It is however possible to appeal for a ‘reduced tax investment participation’. To determine whether the participation exemption applies an intent test is used. This means looking at whether or not the participation is held as an investment. A participation in a company whose balance sheet consists for example of liquid assets, debentures, securities and debts is regarded as an investment. In the latter case the participant is not entitled to participation exemption, but is however entitled to appeal for a participation settlement.

Fiscal unity
If the parent company owns at least 95% of the shares of a subsidiary, the companies can submit a joint application for fiscal unity to the tax authorities, whereby the companies will be viewed as a single entity for corporate income tax purposes. The subsidiary is thereby effectively absorbed by the parent company. One of the most important advantages of a fiscal unity is the fact that the losses of one company can be set off against the profits of another company in the same group. The companies are thereby also entitled to mutually supply goods and / or services without fiscal consequences, and they are also entitled to transfer assets from one company to another.

Fiscal unity is only permissible where all of the companies concerned are effectively established in the Netherlands. In addition, the parent company and the subsidiaries must also use the same financial year and be subject to the same tax regime.

Innovatiebox (Innovation box)
In 2007 the patent box was introduced. Companies that have developed intangible assets (an invention or technical application) can deduct the development costs from the company’s annual profits in the year in which the asset was developed. As soon as a patent has been granted for the intangible asset, the company can opt to place the benefits in the so-called patent box. Plant variety rights also fall under this. With effect from 1 January 2008 the patent box has been extended with intangible assets for which a patent has not been granted but which have arisen from a research and development project. The tax payer must have received an R&D declaration for this from Senternovem.

With effect from 2010 the patent box has been given a new name: the innovation box. The rate for corporation tax for innovative activities has been reduced from 10% to 5%. Losses on innovative activities can from now on be deducted at the normal rate of 25.5%. The outsourcing of R&D work is also possible if the principal has sufficient activities and knowledge present.

A number of conditions must however be fulfilled to be able to qualify for the aforementioned tax benefits: For example, to make use of the innovation box the intangible assets must contribute at least 30 percent to the profit that the company receives from the intangible asset. The patent box does not apply to brands, logos, TV formats, copyrights on software and so on. The choice must be specified in the corporate income tax declaration.

Group interest box
In 2007 the Dutch government introduced the ‘group interest box’ in corporate income tax. The purpose of the box is to tax the balance of interest paid and received between group companies at a special low tax rate of 5%. The company must fulfil a number of conditions to qualify for this allowance. The scheme was approved by the European Commission in 2009. The Netherlands has decided not to introduce the group interest box for the present however.

Thin capitalisation rule
On 1 January 2004, the government introduced a limitation on the interest deduction on corporate income tax; a system that is known as ‘thin capitalisation’. Based on this rule, the company is not permitted to deduct interest in so far as it is making use of excess levels of leveraged financing. The rule applies exclusively to companies that form part of a group. The rule uses two tests to determine whether the company is making excessive use of leveraged financing, namely, a fixed ratio and a group test:

• Based on the fixed ratio criterion, the company is using excess leveraged financing where the fiscal leveraged finance exceeds the company’s fiscal equity capital by more than three times reduced by a franchise of  500,000 €.
• Based on the group test, the company is using excess leveraged financing where the ratio between leveraged financing and the company’s equity capital, according to the commercial (consolidated) balance sheet, exceeds that of the group of which the company forms part of as a whole.

The maximum limitation on the interest deduction is the amount of the interest due to the allied (local and overseas) companies.

Additional limitation on interest deduction
With effect from 1 January 2008 the anti-abuse provision relating to interest deduction has been tightened up further. The Dutch tax authorities may from now on demonstrate that in the case of a group transaction no business considerations are involved, even if the recipient pays 10% or more tax abroad. In that case the interest paid within the group is not deductible. The interest for ordinary business transactions does however remain deductible. Evidence to the contrary is however possible with the so-called evidence to the contrary ruling. If the requirements for this ruling are met, the deduction of interest is restored.

Arm’s Length Principle
The Dutch corporate income tax legislation includes an article that determines that national and foreign allied companies are entitled to charge one another commercial prices for mutual transactions. This is however subject to an obligation to keep due documentation of all relevant transactions. This enables the Dutch tax authorities to determine whether the transaction between the applicable allied companies are conducted based on market prices and conditions. It is possible to obtain prior assurance of the fiscal acceptability of the internal transaction with the use of the so-called ‘Advance Pricing Agreement’.

Tax declarations
The corporate income tax declaration must be submitted to the tax authorities within six months of the end of the company’s financial year.

Author: Harry den Hond, Schagen Lensen & van Krieken Accountants, www.slk.nl

The following are a few of the benefits offered by the Dutch tax system:

• The Netherlands does not charge tax at source on interest and royalties.
• In most cases all the profits that the Dutch parent company receives from foreign subsidiaries are exempted from tax in the Netherlands (participation exemption).
• The Netherlands offers attractive tax-free compensation in the form of the 30% scheme for all foreign personnel who are temporarily employed in the Netherlands.

The Dutch tax system can be divided into taxes based on income, profit and assets, and cost price increasing taxes.

Below you find a summary regarding income tax.

Income tax

Income tax is a tax levied on the income of natural entities with domicile in the Netherlands (domestic taxpayers). They are taxed on their full income wherever it is earned in the world. Any natural person who is not domiciled in the Netherlands, but earns an income in the Netherlands, is liable to pay income tax on the income (foreign taxpayers). Foreign taxpayers can also opt to pay domestic taxes. In the latter instance, the taxpayer is subject to all the rules applicable to domestic taxpayers.

In principle, income tax is charged on an individual basis: Married persons, registered partners and unmarried cohabitants can however mutually distribute certain joint income tax components.

Tax base
Income tax is charged on all taxable income. The different components of taxable income are broken down into three ‘closed’ boxes; each at a specific tax rate.

Each source of income can only be entered in one box. A loss in one of the boxes cannot be deducted from a positive income in another box. A loss generated in Box 2 can be deducted from a positive income in the same box in the previous year (carry back) or in one of the nine subsequent years (carry forward). A loss in Box 1 can be deducted from a positive income in the same box in the 3 preceding years or in one of the subsequent 9 years. Box 3 does not recognize a negative income.

Box 1: Taxable income from work and home

The income from work and home is the sum of:

• The profit from business activities;
• The taxable wages;
• The taxable result of other work activities (e.g. freelance income or income from assets made available to entrepreneurs or companies);
• The taxable periodic benefits and provisions (e.g. alimony and government subsidies);
• The taxable income derived from the own home (fixed amount reduced by a deduction equivalent to a specified interest paid on the mortgage bond);
• Negative expenditures for income provisions (e.g. repayment of specific annuity premiums);
• Negative personal tax deductions.

The following allowances apply to the above-mentioned income components:

• Expenses for income provisions (e.g. premiums paid for an annuity insurance policy or a disability insurance);
• Personal deductions. This concerns costs related to the personal situation of the taxpayer and his family that influence his ability to support himself and his dependents (e.g. medical expenses, school fees and specific living expenses for children).

The tax rate in Box 1 is progressive and can accumulate to a maximum of 52%.

Business allowances and exemptions for Small and Medium-size Enterprises (SME) (MKB in Dutch)
A natural person who derives income from business activities qualifies for tax allowances for entrepreneurs under certain circumstances. The tax allowances for entrepreneurs include self-employed allowance, research and development allowance, overtime allowance and discontinuation allowance. In addition, a starting entrepreneur is also entitled to a start-up allowance.

The SME Allowance (MKB-vrijstelling) will also come into effect in 2007. This entails that entrepreneurs will be entitled to an additional exemption of 12% (2010) of the profits following deduction of the start-up allowance.

Box 2: Taxable income from substantial interest

Substantial interest applies where the taxpayer, with or without his partner, is a direct or indirect holder of a minimum of 5% of the paid-up capital in a company of which the capital is distributed in shares.

The income from substantial interest is the sum of the regular benefits and / or sales benefits reduced by deductible costs. Regular benefits include dividend payments and payments on profit-sharing certificates. Sales benefits include the gains or losses on the sale of shares. Examples of deductible costs include the following: consultancy fees and the interest on loans taken out to finance the purchase of
the shares.

The tax rate in Box 2 is 25%.

Box 3: Taxable income from savings and investments

Box 3 charges tax on the taxpayer’s assets. This assumes a fixed return on investment of 4% of the yield base. The yield base is the average value of the assets less the average value of the debts. The average value is obtained by adding up the assets at 1 January and at 31 December and dividing the sum by two.

The following assets are included under Box 3: Savings, a second house or holiday house, properties that are leased to third parties, shares that do not fall under the substantial interest regime and capital payments paid out on life insurance.

Debts in Box 3 include the following: Consumer loans and mortgage bonds taken out to finance a second house. Per person, the first € 2,900 (2010) of the average debt is not deductible from the assets.

Untaxed assets
All taxpayers are entitled to untaxed assets in Box 3 of € 20,661 (2010). The amount is intended to reduce the yield base. The untaxed assets can be increased by a child allowance of € 2,762 (2010) per minor. Taxpayers of 65 and older are entitled to an extra increase up to a maximum of € 27,350 (2010) under certain conditions. A fixed return of 4% is then calculated on the amount remaining after deduction of the exemption. 30% tax is then paid on this return.

The tax rate in Box 3 is 30%.

Tax allowances
Once the due tax has been calculated for each box, certain tax allowances are deducted from those amounts. All domestic taxpayers are entitled to a general tax allowance of € 1,987 (2010). Depending on the personal situation of the taxpayer and the actual amount of the annual income, the taxpayer may also be entitled to additional tax deductions.

Advance tax payments
Tax is withheld in advance over the course of the tax year for income deriving from work activities and from dividends. Both wage withholding and dividend tax are advance tax payments on income. The withheld amount may be deducted from the income tax due.

Tax declaration
The income tax declaration for any given tax year must be submitted to the tax authority in principle before 1 April of the next year. If a firm of accountants produces the return an extension scheme applies. This means that the return may also be submitted later in the year.

Author: Harry den Hond, Schagen Lensen & van Krieken Accountants, www.slk.nl