NL Tax Alert: retroactive lucrative interest repair measures

Today, the Dutch State Secretary of Finance (SSF) announced his intention to retroactively amend the lucrative interest rules, following a ruling by the Dutch Supreme Court (SC) in April this year. The lucrative interest rules cover, among other items, equity instruments awarded to employees or contractors under such conditions (using leverage) that allow these instruments to generate significantly higher returns compared to other investors. The difference in expected returns is, provided that a minimum leverage ratio is met, treated as a remuneration for labor and therefore in principle taxed at the progressive ‘box 1’ rates maximized at 49.5% (although structuring options often allow for the lower ‘box 2’ rate of 26.9%).

The SC ruled earlier this year that, for calculating the leverage ratio, only (shareholder) loans that are treated as equity for tax purposes are taken into account. The SSF considers this decision to be an undesirable limitation on the scope of the lucrative interest rules that creates uncertainty for current structures, deviates from market practices and potentially leaves the door open for tax avoidance schemes. Consequently, the Tax Plan 2024 will contain repair measures, retroactively effective from today, under which ‘non-equity like’ loans will be included in the leverage ratio calculation.

News overview