Recently, the Spring Memorandum 2023 (Voorjaarsnota 2023) was published, including several expected legislative changes planned to be proposed for future years (and therefore not yet final). The following interesting proposals in the Spring Memorandum 2023 have a potential material impact on taxpayers (both corporate clients and private individuals).
Corporate clients
Addressing real estate share transactions
As expected after the internet consultation a few months ago, it will be proposed to introduce a 10.4% Real Estate Transfer Tax (RETT) on the acquisition of shares in Real Estate Entities that contain newly developed property or building land. Currently, it is possible to transfer new real estate via a share transaction such that neither VAT nor RETT is due.
Abolishment of threshold earnings stripping measure for real estate entities
Based on the earnings stripping measure the balance of interest expenses (i.e., interest paid minus interest received) is deductible only up to the maximum of (1) 20% of the EBITDA and (2) EUR 1 million. This gives companies an incentive to split debt-financed investments across different companies and thus allocate interest paid in such a way that the balance of interest expenses remains below the threshold. The proposal aims to prevent the risk of splitting up companies to make more frequent use of the threshold of EUR 1 million by abolishing the threshold for real estate companies with real estate leased to third parties. As a result, the balance of interest expenses is deductible only up to 20% of the EBITDA. This measure will be part of the 2025 Tax Plan and it is intended that the threshold will be denied as of 1 January 2025.
Amendment to the demerger facility for RETT purposes
The legislator believes that RETT can be avoided if real estate is transferred, by means of using the demerger facility such that no RETT is due, to a (new) group company of which the shares are subsequently transferred to a third party. Although the demerger facility already contains an anti-abuse rule, it is intended to further tighten the demerger facility. It is still unclear what this exactly means, but it seems likely that a claw-back period of three years will be introduced for situations in which the real estate property is no longer held within the group. RETT will in that case still be due with retrospect. It is questionable whether such claw-back is really necessary, as it will also target non-abuse situations. It therefore remains to be seen whether and how this will exactly be amended.
Private individuals
Standard designation of leased property as investment property in the BOR and DSR
If a business is inherited or received as a gift, tax is in principle due. However, if the business is continued by the recipient, an exemption from inheritance tax, gift tax and personal income tax may be applicable. This facility is called the business succession facility (“BOR”) in the Inheritance Tax Act 1956 and the rollover facility (“DSR”) in the Income Tax Act 2001. The facilities are applicable when the business is an active, ongoing business and do not apply to the extent the assets concern investment assets.
According to the Spring Memorandum 2023, the legislator aims to amend the BOR and DSR on several points. One of the amendments is that real estate leased to third parties will be regarded, by fiction, as investment assets for the purpose of the BOR and the DSR (as already decided in the Budget Memorandum 2023). This measure prevents an unintended broadening of the scope of the BOR and DSR. It is intended that this amendment of the BOR and the DSR will be included in the Tax Plan 2024 and will take effect as of 1 January 2024.
Addressing other BOR bottlenecks
Following the evaluation of the business succession facilities (BOR and DSR), the government intends to improve the effectiveness of the BOR and DSR, improve the feasibility of the facilities and remove as many bottlenecks experienced by entrepreneurs as possible. The House of Representatives will be informed on the results of a follow-up study following the evaluation at the end of June 2023, in which the following measures are expected to be explained in more detail:
- From 2025, the exemption percentage of the BOR will be reduced to 70% (currently: 83%) for business assets over € 1.5 million (currently: € 1.2 million);
- Abolish the 5% efficiency margin for investments assets in the BOR and DSR: under the efficiency margin, investment assets up to 5% of business assets are regarded as business assets.
- Mixed-used business assets (both investment and business assets) will only qualify for the BOR and the DSR to the extent they are actually used within the company;
- Limit access to the BOR and DSR to regular shares representing a minimum of 5% share interest;
Bottlenecks arising from the holding requirement and the continuation requirements will be removed in the BOR and DSR including abolishing the employment requirement in the DSR; - Implement anti-abuse provisions in the BOR (e.g., longer possession and continuation periods for certain specific cases and anti-abuse provisions).
Postponement of new Box 3 regime from 2026 to 2027
The introduction of the new Box 3 system based on actual returns on investment will be postponed from 2026 to 2027 (at the earliest).
Should you have any questions regarding the above (or require tax advice in general), the STP specialists are happy to assist you with their expertise.
