November 2005

The Netherlands

Extra decrease profit tax rate 2006

As of 1 January 2006 the corporate income tax rate decreases with another 0.9% to 29.6% for profits over EUR 22,689. Profits below this threshold will be taxed at a decreased rate of 25.5%. In 2007 these rates will decrease even more to 29.1% and 24.5% respectively.

As a consequence it may be advisable to take up as many costs as possible during 2005 in order to benefit from a present tax deductibility of 31.5% (=tax rate 2005).

Fiscal facilitation of purchase of own shares

Also the rules surrounding the purchase of own shares will be loosened. Currently the purchase of own shares is exempt from dividend tax provided that there may not have been a preceding capital increase. In practise this has created a burden for stock quoted companies who are used to increase or decrease their capital based on their constantly moving investment and finance policy. Therefore it is now proposed not to let preceding share emissions be a hindrance for a tax friendly purchase of own shares. By doing so the Dutch government aims to provide a healthy and dynamic environment to these stock quoted companies.

Abolishment of tax deduction liquidation losses

Effective as of 1 January 2007 the current tax deduction on losses generated by the liquidation of subsidiaries of Dutch companies will be abolished. It may therefore be advisable to verify if current loss-creating subsidiaries should be liquidated in order to be able to benefit of the Dutch tax deduction during 2006. Since the loss can only be accounted for by the Dutch company upon finalisation of the liquidation of the subsidiary and because liquidation procedures can consume a considerable amount of time, it is advisable to check this on a short notice. After all, the year 2007 is only 13 months away from today…

More detailed guidelines on the handling of back to back license activities

Last week the Dutch Finance Department finally has come through with more precise requirements as to the economic risk and the remuneration of Dutch license companies in back to back license situations. The economic risk is now defined by the requirement for the Dutch license company to have an amount of equity available which is the lowest of the following amounts: (1) 50% of the average expected annual gross royalty payment or (2) EUR 2 million. The remuneration should be computed taking into account: (1) the handling fee and (2) a risk premium, which both should be determined via a database search (bench marking). The total remuneration should be added as a percentage to the royalty rate.

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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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