April 2005

The Netherlands

Taxplan 2005

As of 1 January 2005 the Dutch corporate income tax rates have been reduced to 27% for profits up to Euro 22.689 and to 31,5% for profits above that level. These percentages drop to 26% and 30,5% as of 1 January 2006 and to 25% and 30% as of 1 January 2007.

Participation exemption extended

Currently the EU Directive provides for capital gains and dividends an exemption when the receiving company holds at least 25% of the shares in the transferring company. Through  a new Directive this threshold will be lowered in stages to 10% in 2009.

The Dutch implementation legislation has not been proposed to the Dutch parliament yet. In anticipation of the implementation legislation, Netherlands tax inspectors are instructed to apply the new EU Directive as if it has been implemented.

As a result, the required percentage of ownership for the application of the participation exemption and the exemption from dividend withholding tax is reduced to 20% as of January 1, 2005, and the participation exemption and the withholding tax exemption apply to the extended list of companies which include:

• certain co-operatives,
• mutual companies,
• certain non-capital based companies,
• savings banks,
• funds, and
• associations with commercial activity.

Abolition of capital contribution tax

The Dutch finance minister has proposed to abolish the capital contribution tax of 0.55% as per 1 January 2006. In general this tax is being levied on all capital contributions to Dutch companies. The most common contributions are the payment of share capital and of share premium. Therefore this abolition may lead to significant savings upon establishing and restructuring Dutch holding companies. It is expected that the proposal will be fully accepted by the Dutch parliament. We will keep you informed via future editions of our News Flash.

BELGIUM

Interest deduction for Risk Capital

In order to erase the current discrimination in the tax treatment of interest deduction in case of investments financed with foreign capital (interest is deductible) and those financed with own capital (no deduction) and in order to stimulate the self-financing of investments the Belgian government has proposed to introduce a new system of interest deduction.

In case of self financing this new system grants an exemption on the corporate tax charge equal to the deemed profitability of the shareholder’s own investments, computed on the basis of an annual governmental interest rate which currently amounts to 3.6% (OLO-interest). This interest rate will be published twice a year (January and July).

All companies subject to Belgian Corporate Income Tax and all Non-Belgian Companies (Belgian establishment or Immovable Property in Belgium) are entitled to apply this interest deduction.

This interest deduction is no dividend or a re-qualification of equity in debt. It is also not subject to withholding tax and does not result in taxable interest income in the hand of Belgian shareholders. Nor is it limited in time and it applies also with respect to the financial years closed with a loss. No investment obligation needs to be fulfilled.

We trust that this positive measure will turn out to be a valuable alternative for the maintaining of business of the co-ordination centres in Belgium, whose licensing will end in late 2010 in any case.

Another important point is that the measure will comply with European directives. This will provide legal certainty, making it attractive for investors. The measure is expected to enter into force as from January 1, 2006.

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Contact us

If you wish to receive more information on these subjects please call your contact person at Wassenaar (+31 70 5140267), Amstelveen (+31 20 6400361), Antwerp (+32 3 2260883) or Luxembourg (+352-061 928 462).

The information in this News Flash is informative and should not be relied upon in decision making. International tax planning and financial structuring are subject to constant changes and we therefore strongly recommend that each potential user of our services seeks professional tax and legal advice in his/her country of origin before deciding on the use of international financial structures.

FTC and CSB will not be liable for any damages, costs and expenses resulting from or incurred with any action taken, or any action omitted, based upon any information contained in this News Flash.

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