The bill entitled Wet excessief lenen bij de eigen vennootschap (Excessive Borrowing from one’s own Company Act) has been announced. The main reason for this measure is to combat tax deferral and cancellation by substantial interest holders. By withdrawing surplus funds from one’s own company instead of receiving it as dividend or wages, taxation is currently being avoided. With this bill, the cabinet is connecting taxation with the decision moment for these funds. As a result of this, substantial interest holders must pay box 2 tax in so far as they borrow more than EUR 500,000 from their own company. An internet consultation round will run until 1 April 2019.
The main features of the proposed measure are as follows:
- introduction as from 1 January 2022;
- the reference date will be 31 December, therefore the measure will apply effectively on 31 December 2022 for the first time;
- it concerns the total debt that the substantial interest holder and/or his partner has, legally or in fact, directly or indirectly, with all companies combined in which a substantial interest is held;
- in so far as the total debt exceeds the amount of EUR 500,000, the surplus in box 2 will be taxed as notional regular gains (rate 2022: 26.9%);
- the amount of debt that is exempted (EUR 500,000) will be increased by the amounts taxed as deemed benefit in previous years;
- no offsetting will take place with receivables of substantial interest holders from the company. Only the debts will therefore be considered;
- the measure is also applicable to debts that relations by blood or affinity in the direct line of the substantial interest holder or his partner have with the company of the substantial interest holder;
- ‘back-to-back’ situations also fall under this measure. An example might be a situation in which the company lends money to the sister of the substantial interest holder who in turn relends the money to the substantial interest holder. A situation in which the substantial interest holder takes out a loan with a bank, whereby the company guarantees the obligations assumed by the substantial interest holder in all respects, also falls under the measure. This means, therefore, that the substantial interest holder is able to take out the loan with the bank as a result of the guarantee. If the guarantee solely leads to more favourable conditions for the loan of the substantial interest holder, such as a lower interest rate, the loan does not then fall under the measure;
- the debt will not be transformed into a box 2 debt. A debt that falls in box 3 will therefore continue to reduce the base of box 3;
- there will be no rebuttal scheme;
- on 31 December 2021, existing home acquisition debts (home in box 1) with the company will be excluded from the measure;
- home acquisition debts that are taken on by the company from 1 January 2022 will be disregarded in so far as a right of mortgage is established for the company in relation to that debt;
- if a deemed profit distribution is taken into account in 2022 (the first year), a concession (‘disposal credit’) will be granted if the shares are later sold. However, this cannot lead to a loss on the substantial interest and the disposal credit can only be used once. For the time being, there are no rules for the avoidance of double taxation in respect of deemed profit distributions in subsequent years;
- in the event of immigration, a step-up applies to the existing debt at the time of immigration;
- in the event of emigration, this measure will apply, in principle, to the protective assessment and the deferment of payment. If the excessive debt increases after emigration, that may result in the deferment of payment being partially withdrawn.
It is not currently clear whether, and if so to what extent, the scope of the measure will be adjusted. We will keep an eye on the developments.