The Netherlands Parliament Approves Law to Amend its Global Minimum Tax Law for OECD Administrative Guidance

General

On December 17, 2024, the Netherlands Parliament approved a draft law to amend the Minimum Tax Act (which implements the OECD Pillar Two GloBE Rules as provided in the EU Minimum Tax Directive). This includes a number of amendments to implement further aspects of the February 2023 and July 2023 OECD Administrative Guidance and some aspects of the December 2023 OECD Administrative Guidance.

OECD Administrative Guidance

Included in the Minimum Tax Act

Aspects of the First Set of OECD Administrative Guidance included in the Minimum Tax Act are:

– The deemed consolidation rules (Article 1.2)

– The exclusion of sovereign wealth funds from the definition of Ultimate Parent Entity (Article 1.4)

– Meaning of “ancillary” for Non-Profit Organisations (Article 1.6)

– The foreign exchange hedge election (Article 2.2)

 – Excluded Dividends – Asymmetric treatment of dividends and distributions (Article 2.3)

– The debt release election (Article 2.4)

– Excess Negative Tax Carry-forward guidance (Article 2.7)

– Substitute Loss carry forwards (Article 2.8)

– The equity gain or loss inclusion election (Article 2.9)

– Allocation of taxes arising under a Blended CFC Tax Regimes (Article 2.10)

– Application of Taxable Distribution Method Election to Insurance Investment Entities (Article 3.1)

– The exclusion of Insurance Investment Entities from the definition of Intermediate Parent Entity and Partially-Owned Parent Entity (Article 3.2)

– Portfolio shareholding election (Article 3.5)

Simplification for Short-term Portfolio Shareholdings (Article 3.5)

– Application of tax transparency election to mutual insurance companies (Article 3.6)

– Asset carrying value and deferred taxes under Transitional Rules (Article 4.3)

Included in the December 2024 Amending Law

The December 2024 Amending Law includes a number of aspects of the OECD Administrative Guidance, including:

-Rebasing monetary thresholds in the GloBE Rules/Currency Conversion Rules (Article 1.1, AG1, AG2)

-Further rules on Excess Negative Tax Carry-forwards, which applies from December 31, 2024 (Article 2.7, AG1)

-Tax Credits Guidance (MTTCs) (Article 2, AG2)

-SBIE – Foreign Rules (Article 3, AG2)

-SBIE – Operating Leases (Article 3, AG2)

-Transitional CbCR Safe Harbour Adjustments (AG3)

Safe Harbours

The Minimum Tax Act reflects the provisions of the OECD Safe Harbour and Transitional Penalty Regime Guidance.

Article 8.8 applies the Transitional CbC Safe Harbour with no significant deviations from the original OECD Safe Harbour Guidance.

The December 2024 Amending Law includes provisions to implement aspects of the December 2023 OECD Administrative Guidance, including:

-Purchase Accounting Adjustments (consistent reporting condition, goodwill impairment adjustment) (Article 8.8(12) states that rules will be provided for these)

-MNEs not required to file CbC Reports

-Treatment of hybrid arbitrage arrangements (applies for reporting periods from December 31, 2024)

Article 8.11 includes the broad scope for the Permanent Simplified Calculation Safe Harbour, as provided by the OECD.

The simplified calculations are not included in the Act because they still need to be agreed in detail in the Inclusive Framework. Once agreement on the simplified calculations has been reached, rules will be drawn up under an Order in Council.

Articles 8.13 and 8.14 include the QDMTT Safe Harbour and the Transitional UTPR Safe Harbour.

Domestic Minimum Tax Amendments

Local Accounting Standard Rule

-Articles 3.2/8.13 of the Minimum Tax Act apply the Local Accounting Standard Rule as provided in the OECD Second Set of OECD Administrative Guidance.

As such, the QDMTT is based on the Local Financial Accounting Standard where all of the Constituent Entities located in the Netherlands have financial accounts based on that standard and:

-they are required to keep or use those accounts under domestic law; or

-the financial accounts are subject to an external financial audit.

If these conditions are not met, (or the fiscal year of the financial statements prepared on the basis of the Local Accounting Standard is different to the Fiscal Year of the Consolidated Financial Statements of the MNE Group) the UPE accounting standard or other acceptable/authorised accounting standard is used (adjusted to prevent Material Competitive Distortions if relevant).

The December 2024 Amending Law introduces a ‘tie-breaker  rule’ where the financial reporting of all group entities established in the Netherlands has been prepared on the basis of more than one local financial reporting standard.

The position before the December 2024 Amending Law was unclear. It provided that qualifying accounting standards were:

a. the financial reporting standard used in preparing the consolidated financial statements of the ultimate parent entity;
b. another accepted or authorized reporting standard; or
c. the local financial reporting standard.

The new provision applies for reporting periods on or after December 31, 2024. 

Currency

Article 3.2(4) of the December 2024 Amending Law implements provisions of the Second Set of OECD Administrative Guidance which provides some specific rules relating to the currency to be used for calculating the QDMTT.

The general rule is that where all the Constituent Entities in the jurisdiction use euros as their functional currency, the QDMTT requires the relevant computations in that currency.

However, if not all Constituent Entities in the jurisdiction use euros as their functional currency, the Filing Constituent Entity may make a Five-Year Election to undertake the QDMTT computations for all Constituent Entities in the jurisdiction either:

1. in the presentation currency of the Consolidated Financial Statements; or

2. in euros.

Hybrid Pushdowns 

– The July 2023 OECD Administrative Guidance provides further rules for the allocation of taxes for the purposes of a domestic minimum tax being a QDMTT.

In particular it excludes tax allocated to hybrids as well taxes on dividends (except domestic WHT).

Article 7.5 of the Minimum Tax Act provides for this.

Transitional Year Refreshing

–The December 2024 Amending Law includes a new Article 14.1a in the Minimum Tax Act to apply the approach taken in the OECD Commentary to cases where the first Fiscal Year that a QDMTT applies to domestic Constituent Entities located in the Netherlands is before or after the first Fiscal Year in which the GloBE Rules apply to those Constituent Entities. In particular, various tax attributes are amended as provided in para 118.49.2 of the OECD Commentary.

Filing

In-scope MNEs will need to file a tax return with top-up tax payable by the deadline for filing the return.

The  filing deadline for the tax return is seventeen months. This effectively means that a group entity has two more months to file a return and pay the top-up tax, after the period for filing the GloBE Information Return has expired.

In the commencement year, the tax return filing deadline/payment deadline is 20 months (August 31, 2026 for the first reporting year to December 31, 2024). The December 2024 Amending Law includes provisions for a short transitional/reporting year that ends before December 31, 2024/March 31, 2025.

The December 2024 Amending Law includes a new Article 14.5 into the Minimum Tax Act to provide for the OECDs Transitional Simplified Reporting Election.

This applies for accounting periods that begin on or before 31 December 2028 and end before 1 July 2030 where:

-None of the entities in the territory have top-up amounts or additional top-up amounts for the accounting period to which the election is to apply or

-Top-up Tax arises but it does not need to be allocated on a Constituent Entity by Constituent Entity basis.

Where this applies it permits MNE Groups to report GloBE information at a jurisdictional level.