Netherlands Fight Excessive Loans
On 20 December 2022, the bill 'Excesswive Loans from Own Company Act' was adopted by the Netherlands Senate. This law will enter into force on 1 January 2023, with 31 December 2023 as the first reference date. On that reference date, a notional regular benefit will be taken into account in box 2 (where directors and major shareholders are taxed) to the extent that the debts of the substantial interest holder and his partner vis-à-vis their own company or companies jointly exceed €700,000.
With the new law, the government aims to discourage loans from a company to its director-major shareholder and other holders of a major interest. Currently, major shareholders can defer any liability to income tax by borrowing from their own company, instead of paying dividends. The government wants to fight this deferral of the tax. As a result of the measure , substantial interest holders will have to pay income tax in box 2 to the extent that (i) they borrow more than €700,000 on the annual reference date from companies in which they hold a direct or indirect substantial interest and (ii) the measure has not already been applied to the same amount in a previous year.
The first reference date is 31 December 2023.
Group of taxpayers
The debts of the substantial interest holder and his/her partner are fictiously added up even if the partner is not a substantial interest holder. It is therefore irrelevant for the €700,000 limit whether the debts to the company were incurred by the taxpayer or by his/her partner. In addition, the measure applies to debts incurred by blood relatives or relatives by marriage in the direct line of the substantial interest holder or of his/her partner.
All types of loans
All civil debts and obligations to one's own company are targeted . This concept is given a broad interpretation. Thus, debts not directly contracted with the company but indirectly originating from the company are also covered by the measure. This includes, for example, borrowing from or lending through another (legal) person to the substantial interest holder and loans from a third party to the substantial interest holder guaranteed by the company.
For the purposes of the measure, claims and rights vis-à-vis one's own company are not netted off against debts to the company.
Debts that qualify as owner-occupied housing debt (Box 1) are exempted from the measure if a mortgage right has been granted to the own company. Box 3 debts used for the owner-occupied home are not exempt. If the owner-occupied home debt (box 1) already existed on 31 December 2022, the exception also applies if no mortgage right has been provided.
Non resident taxpayers
In principle, the new law also applies to non resident substantial interest holders. Generally, these non-resident taxpayers are protected by the double tax treaty if they reside in a country with which the Netherlands has concluded a double tax treaty. In these cases, the Netherlands has no right to tax the (negative) notional regular benefit.
The legislator has recognised this and it has indicated that it does not intend to amend tax treaties on this point.