INTRODUCTION

On 15 September 2011 the first version of the 2012 tax proposals was published. After a lot of criticism and debate, particularly with respect to the proposed leveraged acquisition holding regime, the proposals have been subject to various amendments. On 17 November 2011, an amended version of the new Dutch tax legislation has been approved by the Lower House of the Dutch Parliament. The Bill needs to be approved by the Upper House of Dutch Parliament. No further amendments are expected and, in principle, this legislation will enter into force as per 1 January 2012.

However, the new legislation with respect to leveraged acquisition holdings will most likely apply to fiscal unities between leveraged holdings and targets that are formed as per 15 November 2011. In addition to the existing Dutch anti-base erosion and thin-cap regimes, the leveraged acquisition holding regime also applies to third-party loans. The 2012 tax proposals regarding the foreign shareholder regime and the permanent establishment regime have not been subject to (significant) changes. For a more detailed discussion of these regimes, we refer to our earlier tax alerts.

Furthermore, it has been announced that potential new legislation with respect to interest deduction restrictions in relation to foreign shareholdings will be published in the course of 2012. The Dutch State Secretary of Finance has indicated that he will take the Dutch investment climate into regard when drafting the potential new rule.

2. LEVERAGED ACQUISITION HOLDING REGIME

2.1 Originally proposed leveraged acquisition holding regime
This proposed measure is aimed at acquisition structures which erode Dutch taxable profits through a fiscal unity or legal merger between a leveraged Dutch holding company and a profitable Dutch target. Under the original 2012 tax proposals, interest deductions would have been restricted if the acquisition vehicle's interest costs would have exceeded the acquisition vehicle's profit, insofar as the interest would have exceeded EUR 1,000,000 and insofar as the fiscal unity’s debt:equity ratio would have exceeded a 2:1 proportion.

2.2. Amended version of the leveraged acquisition holding regime
However, in accordance with the alternative which was suggested by the Dutch Tax Bar Association, the leveraged acquisition holding legislation has become a transaction-based regime. Pursuant to this regime, the amount of interest which may be deducted primarily depends upon:

(i)                   the acquisition price; and
(ii)                 the acquisition debt.

In principle, the amount of the acquisition debt may not exceed 60% of the acquisition price. Subsequently, for a seven  year period, the allowed maximum debt percentage of 60% annually decreases by 5%, until a 25% residual debt remains (which does not have to be paid off in order to stay out of the regime). As a result the taxpayer is encouraged to gradually repay the acquisition debt.

The taxpayer has to determine the amount of excessive debt on an annual basis. In the event of multiple acquisition debts the taxpayer therefore has to calculate the excessive debt per acquisition. Acquisitions within the same year will, however, be combined for purposes of determining the excessive debt. 

This regime only comes into play in the event that the interest exceeds the profit of the holding on stand-alone basis and that the amount of interest exceeds EUR 1 million. Non-deductible interest may be carried forward to future years.

2.3. Considerations