Overview

The Dutch Government released draft legislation on the Pillar Two GloBE Rules for consultation yesterday (October 24, 2022). 

The consultation runs until December 5, 2022. The intention is for the income inclusion rule to be implemented for financial reporting periods beginning after December 31, 2023, with the under-taxed payments rule applying from December 31, 2024. 

The Netherlands consultation document includes draft legislation as well as detailed commentary and runs to nearly 340 pages. 

3,000 multinational groups and large domestic groups are expected to fall within the scope of the GloBE Rules in the Netherlands with expected additional tax revenue of 400-500 million euros. 

The consultation document notes that additional tax revenue can effectively be split into two aspects: 

Firstly, under the qualifying domestic minimum top-up tax the Netherlands can tax Dutch low-taxed entities of both multinational and domestic groups where the ETR is less than 15%.

The consultation notes that this may apply through the application of some special regimes, such as the innovation box, the tonnage regime or the liquidation loss scheme. However, given the headline Dutch corporate income tax rate is 25.8% this is not likely to apply to many MNEs.  As such the expected revenue gain is around 100 million. 

Secondly, there is the right of the Netherlands to tax foreign low-taxed entities where the UPE/intermediate parent or POPE is in the Netherlands. The extent to which revenue gains will arise is very uncertain due to the unknown behavioural effects.

This could arise due to foreign states implementing their own qualifying domestic minimum taxes or MNEs profit shifting to leave less profits taxed in low-tax jurisdictions. 

There could actually be very little tax revenue generated in these cases. The main benefit would be where MNEs shifted profits to higher tax jurisdictions such as the Netherlands. The revenue gains estimated from this are expected to be between 300-400 million euros. 

Key Takeaways