Netherlands: Budget 2013 repeals thin cap rules
Pie Geelen, Deloitte, New York, Jochem Temmerman, Deloitte, Hong Kong, Aart Nolten, Deloitte, Utrecht
The Netherlands’ proposed 2013 budget published on September 18, 2012 includes the abolition of the thin capitalisation rules. If approved, the rules will be repealed for financial years starting as from January 1, 2013.
Abolition of the rules has been expected because a more specific interest deduction limitation applying to the excessive debt financing of acquisitions of participations was adopted earlier in 2012. At the time the excessive debt financing rules were proposed, the Dutch Ministry of Finance indicated that the thin capitalisation rules might be abolished provided the negative budget impact (€30 million) could be offset by other measures; this appears to have been achieved.
The scope of the new rules on excessively debt-financed participations is different from that under the thin capitalisation rules, so companies will need to carefully assess the impact on their debt-financed participations.
The thin capitalisation rules were introduced in 2004 in response to the decision of the European Court of Justice in the Bosal case, in which the Court ruled that the Dutch tax provision disallowing the deduction of interest expense incurred in connection with investments in foreign participations was incompatible with EU law…
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