Dutch Budget proposes tax changes related to CO2 emissions: PwC

In brief

Last week, on Budget Day, the Dutch government published the 2023 Tax Package, including proposed changes to Dutch tax legislation that are envisaged to take effect on January 1, 2023.

Against the backdrop of geopolitical developments resulting in significant inflation, the Dutch government has focused on reducing the tax burden for individuals and households with low or medium income. The government envisages offsetting this reduction by a significant increase in the tax burden of high-net-worth individuals and director-shareholders/small entrepreneurs.

The takeaway: For (larger) corporate taxpayers, the Package proposes limited changes to the corporate income tax system. However, for a specific group of companies that are subject to the Emission Trading System (ETS), there would be an increased burden related to their (future) CO2 emissions. The government’s proposals may be amended during parliamentary discussions.

In detail

Please find below an overview of the most relevant measures for multinational companies included in the 2023 Tax Package. Unless specifically mentioned otherwise, these measures would become effective January 1, 2023.

Corporate income tax

Amendment of the corporate income tax (step-up) rate

The corporate income tax rate and amount of the first bracket would be amended. The first bracket would be lowered from EUR 395,000 to EUR 200,000. The applicable tax rate (also referred to as the ‘step-up rate’) would be increased from 15% to 19%. The tax rate for all taxable income above EUR 200,000 would remain unchanged at 25.8%.

Transfer tax

Transfer tax rate on nonresidential properties to increase

The transfer tax on nonresidential properties and acquisitions of properties by legal entities and private parties that are not going to live in these properties for the long term would increase from 8 to 10.4%.

Wage tax

Changes to 30% ruling

Subject to certain conditions, employers would be able to reimburse extraterritorial costs tax-free to expats. After some debate, the Dutch government decided to maintain this favorable regime for expats. Pursuant to the relevant rules, the reimbursement could be done on a declaration basis or via the 30% ruling. However, under the Package, these facilities no longer could be used alongside each other in a single calendar year, except in the first four months of employment.

As of January 1, 2024, the 30% ruling could be applied to a maximum of the standard under the Standards for Remuneration Act (2022: EUR 216,000). In the case of expats who already are using the 30% ruling in 2022, the cap would not become effective until January 1, 2026.

Changes to share option regime

Under the current share option regime, liquidity problems may arise as a result of tax becoming due at the moment stock options are exercised, even if the actual shares obtained with the exercise cannot be sold.

The proposed amendments to the regime aim to make stock option rights a more attractive incentive for employees. Depending on whether the shares are tradable after exercise, taxation would take place as follows:

At exercise if the shares could be sold immediately (or at disposal of the stock option right, if earlier). The taxable benefit is the fair market value of the shares at the time of exercise, less the exercise price paid.
At the moment the shares could be traded. Please note that this would not have to coincide with the actual disposal of the shares. The taxable benefit would be the market value of the shares, less the exercise price paid.
At exercise if the shares are not yet tradable, but the employee elects to keep the exercise as the taxable moment. The taxable benefit would be the market value of the shares at the time of exercise, less the exercise price paid. A discount might be applicable over the value of the shares due to a sale restriction. This election would be subject to certain conditions.

Observation: As a result of these amendments, stock option rights are expected to be used more often to attract skilled workers, especially by start-up and scale-up companies. This regulation only applies to stock options and not, for example, to instruments such as Restricted Stock Units.

Climate and energy

Budget for EIA and MIA/Vamil

The Energy Investment Allowance (EIA), Environmental Investment Allowance (MIA), and Accelerated Depreciation of Environmental Investments (Vamil) are fiscal investment facilities in the income/corporate income tax for qualifying investments in energy-efficient and environmentally friendly technologies. The government announced an increase in the budgets for these facilities. In order to provide companies extra support and to accommodate the increased demand for the facilities.

Production charge as solidarity contribution

The government intends to introduce a production charge of 65% on prices over and above 50 eurocents per cubic meter for 2023 and 2024. This is intended to generate 2.8 billion euros as a solidarity contribution from oil and gas producers. The government is in talks with oil and gas producers on binding agreements as an alternative to the production charge increase, whereby the condition is that the return must be the same.

Tightening up of CO2 levy for industry (parameter change)

In line with the CO2 levy for industry bill proposal and the new EU ETS benchmarks, the national reduction factor is to be recalibrated as of January 1, 2023. In addition, the reduction factor, and therefore effectively the number of dispensation rights, is to be tightened. The proposed reduction factor for 2023 would be 1.213. The annual decrease in the reduction factor would rise to 0.078 per year.

The rate of the CO2 levy would not change from January 1, 2023 onwards. The government intends to decide in 2024 whether the rate of the CO2 levy has to be increased from January 1, 2025 onward.

CO2 minimum price for industry

The current minimum price for emissions that are not covered by a dispensation right increases every year. The Package proposes to introduce a CO2 minimum price for the emissions of industrial companies that are covered by dispensation rights.

The CO2 minimum price has been set at the same amount as the minimum CO2 price for electricity generation and would increase on a linear basis from EUR 16.40 in 2023 to EUR 31.90 per ton of CO2 in 2030. The CO2 minimum price is only applicable if the EU ETS forward rate is lower than the CO2 minimum price for that year. The minimum prices are to be reviewed this autumn with a goal of increasing the effectiveness of the CO2 minimum price.