Own-initiative proposal for scaling back DMS-facilities
14/06/22
On 7 June 2022, an own-initiative proposal was submitted by Dutch left-wing political parties which scales back a number of tax measures for director and major shareholder (DMS): the business succession facilities will be sobered down, Box 2 will get a graduated and higher rate and the margin for the customary wage will be abolished. The own-initiative proposal should enter into force on 1 January 2023. Before the Dutch Lower House considers the proposal, it must pass the Dutch Council of State. In view of the intended date of entry into force, the submitters have requested an urgent opinion from the Council of State.
The initiators argue in favour of a large-scale revision of the tax system, in which the rules are simpler, economic activity is stimulated and the burden is more fairly distributed. They particularly see an inequality between the taxation of labour and that of capital. In their view, many exceptional measures should be removed to achieve this goal. Their own-initiative proposal would be an intermediate step towards a more thorough and more comprehensive reform. This own-initiative proposal was announced earlier. A measure that was mentioned at the time and that has not been included in the present proposal is the further tightening of the Excessive Borrowing Bill.
What does this mean for you?
It is not yet possible to predict how the own-initiative proposal will be politically received. What is clear is that the Dutch government has major budgetary challenges and may seek additional income from taxes to meet these. Based on this, the Dutch Cabinet could further tighten some of the measures it announced in the Spring Budget Memorandum with measures from the own-initiative proposal. This would then end up in the Tax Plan Package 2023.
Measures
The own-initiative proposal contains the following measures, which, with a few exceptions (indicated below), should enter into force on 1 January 2023:
- Austerity of tax facilities for business succession:
- Lowering of the exemption percentage for the business succession regulation (BOR) for gift and inheritance tax to 25% and to a maximum value of € 4,000,000 (2022: 100% exemption up to € 1,134,403 and 83% exemption over the excess); this measure should enter into force on 1 January 2024.
- treat rented property as investment property for the purposes of the BOR;
- introduce minimum shareholding for application of BOR to 25% (2022: application of BOR from 5% shareholding)
- abolish the income tax deferral scheme for gifts and inheritance of a substantial interest.
- Adjustment of box 2 rates and brackets:
- 25.96% up to € 58,989, and 40.59% thereafter.
- 40.59% above.
- Abolition of the efficiency margin of 25% in the customary wages scheme.
Link with e.g. Spring Budget Memorandum
These measures appear to be related to a certain extent to earlier reports (like the ‘Bouwstenennotitie’, the ‘BOR-evaluation of CPB’ and the tax measures announced in the Spring Budget Memorandum 2022).
However, the measures proposed in the Spring Budget Memorandum regarding box 2 taxation and the customary wage would be tightened considerably by the own-initiative proposal. For example, according to the Spring Budget Memorandum, as of 2024 (own-initiative proposal: as of 2023) the bracket limit would be EUR 67,000 in income per person (own-initiative proposal: EUR 58,989), with a basic rate of 26 percent (own-initiative proposal: 25.96 percent) for the first bracket and a rate of 29.5 percent (own-initiative proposal: 40.59 percent) for the second bracket. According to the Spring Budget Memorandum, the efficiency margin in the customary wage scheme would be reduced from 25 per cent to 15 per cent (own-initiative proposal: to be abolished entirely) by 2023.
In addition, the own-initiative proposal anticipates the Cabinet's position in response to the CPB evaluation of tax facilities for business succession. The Cabinet has indicated that it will respond to this evaluation on Budget Day 2022.
Follow-up
The own-initiative proposal must still pass through the Dutch Council of State before it will be considered by the Dutch Lower House. The submitters have requested urgent advice from the Council of State.
In the week of 13 June 2022, the plenary debate of the Spring Budget Memorandum 2022 is on the agenda of the Dutch Lower House. It is possible that the proposed tax measures of the own-initiative proposal will also be discussed then.
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