GloBE Country Guide: The Netherlands
June 5, 2023
Analysis of the domestic implementation of the Pillar Two Global Minimum Tax rules in the Netherlands from December 31, 2023. Updated for the Minimum Tax Bill of May 31, 2023.
Article 7.5.2 of the OECD Model Rules provides that this is a five-year election and it treats the GloBE income of the investment entity as accruing to the constituent entity owner in proportion to its ownership entitlement.
It is only available where the constituent entity owner is subject to tax on a fair value accounting method on its interest in the investment entity (such as under a mark-to-market accounting policy) and the tax rate levied on the income for the owner is at least 15%.
The purpose behind the election is to align the GloBE rules with the domestic tax treatment for the owner of the investment entity. The election applies to both directly held and indirectly held investment entities.
Under domestic law, the constituent entity owner would be subject to tax on the income of the investment entity anyway (calculated on fair value changes). This election simply pushes up the income to the constituent entity owner for the GloBE income calculation to match the timing under domestic law.
One of the criticisms of this election is that in some countries, such as Germany, changes of the fair value of the ownership interest in the investment entities are not taxed. In others, such as France, some investors are taxed on changes of the fair value as required but others are not and are taxed on the historic
value of their ownership interests.
Therefore, this election is either not applicable in some jurisdictions or only on a few investment entities or insurance investment entities in others.
Note that once an election is made a constituent entity owner of an investment entity shouldn’t include any fair value adjustment even if when looked at separately it may use a fair value basis for accounting purposes. If there are any fair value adjustments included in the financial accounting income or loss they should be excluded from GloBE income.
To include such adjustments would result in the income being included in GloBE income twice given the tax transparency election already allocates the share of the investment entity income to the constituent entity.
In this case, if we assume P Co 1 and P Co 2 were subject to the mark-to-mark basis on their investment in the investment fund, they could file a tax transparency election.
The income of the fund, which is likely to be calculated on a fair value basis under accounting standards, would be included in P Co 1 and P Co 2’s GloBE income.
If the income was for instance 1,000,000 euros, P Co 1 would include 750,000 euros and P Co 2 would include 250,000 of income.
The substance-based income exclusion also applies to the constituent entity owners on a tax transparent basis. In other words, the constituent entity owner can take into account its share of the payroll costs and tangible assets in the jurisdiction when calculating excess profits.
The Tax Transparency Election treats the GloBE income of the investment entity as accruing to the constituent entity owner in proportion to its ownership entitlement.
The purpose behind the election is to align the GloBE rules with the domestic tax treatment for the owner of the investment entity.
Analysis of the domestic implementation of the Pillar Two Global Minimum Tax rules in the Netherlands from December 31, 2023. Updated for the Minimum Tax Bill of May 31, 2023.
The Netherlands presented the Minimum Tax Bill, 2024 to Parliament yesterday. It implements an Income Inclusion Rule and a Qualified Domestic Minimum Top-Up Tax for financial years commencing on or after December 31, 2023. An Under-Taxed Profits Rule applies for financial years commencing on or after December 31, 2024.
Track the development and application of QDMTTs as they are implemented globally. The OECD Administrative Guidance provides significant flexibility as to their design.
Analysis of the domestic implementation of the Pillar Two Global Minimum Tax rules in Switzerland from January 1, 2024. Updated for the Second Draft Decree of May 24, 2023.
It was reported last week that the Vietnamese Ministry of Planning and Investment is working on designing tax incentives to take account of the upcoming application of Pillar Two.
Last week the Bahamian government released a Green Paper asking for feedback on four proposed strategies for the introduction of corporate income tax in the Bahamas, including a QDMTT.
Yesterday, Switzerland issued an updated Draft Decree for the Pillar Two Global Minimum Tax. This follows the previous Draft Decree that was subject to a public consultation.
Whilst both jurisdictions are opting for direct transposition of the OECD Model Rules, there is a key difference in how they are drafted.
Today, the IASB issued the amendments to IAS 12 to take account of the Pillar Two GloBE Rules.
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