On 31 May 2023, the Dutch government submitted to Parliament a bill implementing the EU Pillar Two Directive. The bill takes effect on 31 December 2023. As part of a global agreement reached within the Inclusive Framework on BEPS in October 2021, it ensures that multinational enterprises (MNEs) with a combined annual turnover of at least EUR 750 million are subject to a minimum tax rate of 15% on their profits in each jurisdiction they operate in.
The Bill’s Main Provisions
The bill contains three separate top-up taxes: a qualifying domestic minimum tax (QDMTT), an income inclusion rule (IIR), and an undertaxed payments rule (UTPR). The QDMTT will be applied in respect of low-taxed MNE entities operating in the Netherlands. The IIR affects the ultimate (or intermediary) parent entity based in the Netherlands with foreign low-taxed MNE entities.
The UTPR will be applied by the Netherlands in respect of MNE entities located in other jurisdictions if a QDMTT or an IIR has not been applied already, even though the UTPR is considered controversial in the US.
In comparison to the documents presented earlier for consultation, the final proposal provides that:
- Safe harbour rules may reduce the compliance burden in low-risk jurisdictions;
- The Netherlands will be cautious in applying penalties during the transition period;
- The US global intangible low-taxed income (GILTI) regime may qualify as a controlled foreign corporation (CFC) regime. As a result, GILTI taxes may be allocated to the Dutch group entities to which the tax relates; and,
- A dedicated team of the Dutch Tax Administration will administer and enforce the new rules.
Implications
The new bill will have significant implications for in-scope groups. While the IIR and the QDMTT are expected to apply as of 31 December 2023, the UTPR will apply as of 31 December 2024. According to the bill, in-scope groups will need to file two returns in the Netherlands. The GloBE information return must be filed within 18 months of the first reporting year. The self-assessment top-up tax return and the payment of any top-up tax due in the Netherlands must be filed and paid within 20 months of the first reporting year. Assuming the 2024 calendar year is the first reporting year, then 30 June 2026 is the deadline for filing the GloBE information return, and 31 August 2026 is the deadline for filing and paying any self-assessment top-up tax.
Complying with the New Bill
To comply with the new bill, MNEs should:
- Review their tax structures and identify the entities that may be affected by the new rules in the Netherlands and other jurisdictions.
- Take action to avoid double taxation, such as restructuring and simplifying their legal and operating structure.
- Assess the compliance impact and design a roadmap to implement Pillar Two.
- File the GloBE information returns as per the new rules.
In conclusion, the new bill is a major step towards implementing Pillar Two in the Netherlands. MNEs should be aware of the potential impact of the bill and resulting compliance obligations. If you have any questions or comments about the new bill, please contact us.