Impending tax changes for large (international) groups

The design for the new Programme Law was submitted on 24 November 2022. As is usual each year, this will include various tax changes. At an international level, the most important changes involve the notional interest deduction, the minimum corporate tax rate and foreign tax credits for royalties. This article explains the implications in more detail.

Notional interest deduction

According to the notional interest deduction, or deduction for risk capital as it is also known, SMEs and large companies may deduct a certain percentage of their taxable income. As the rate has been negative for large companies for several years now, this deduction is currently only relevant to smaller companies. It is now set to be eliminated altogether for all taxable periods ending from 31 December 2023.

Minimum tax rate

Also relevant to corporate income tax, it was previously possible to fully claim a ‘basket’ of certain deductions up to EUR 1 million in taxable profits and at a rate of 70% for profits exceeding this threshold. From 1 January 2023, this percentage will be reduced to 40% for the 2024 tax year. As a result, a minimum tax rate of 60% will apply for taxable profits in excess of EUR 1 million going forward. The 70% rate may well be re-instated for the 2025 tax year from 1 January 2024, but this is not yet definite.

While both these changes are accompanied by anti-abuse provisions, any changes from 11 October 2022 up to the financial year’s closing date will be without consequences.

Foreign tax credits

Finally, foreign tax credits for certain royalties will no longer be calculated according to a flat rate (standard credit of 15%). For taxable periods ending from 31 December 2023, tax credits for all royalties will be limited to the actual amounts of foreign tax paid.