2005 Tax Plan (21 September 2004)
The 2005 Tax Plan contains tax proposals that are in direct relation with the government coalition agreement and the 2005 policy package. Priorities include targeted income support, strengthening the Dutch business climate, and greener taxes. The Plan is part of the 2005 Tax Package.
The 2005 Tax Package comprises the following legislative proposals:
1. 2005 Tax Plan
2. Other Tax Measures in 2005 (already submitted)
3. implementation of the Amendment to the parent-subsidiary directive
4. implementation of the Amendment to the directive on assistance with the levying of taxes
5. implementation of the Amendment to the directive on assistance with the levying of taxes
The main measures in the 2005 Tax Plan are outlined below.
Income support
To improve the income of old age pensioners, minimum wage earners and families with children, the Government has devised a wide range of measures. The Tax Plan deals with the tax components, and comprises the following measures:
- increasing the general tax credit by €30;
- expanding the first tax band by €400;
- increasing the rate of the second tax band by 0.6%;
- increasing the elderly person’s tax credit by €30;
- increasing the supplementary elderly person’s tax credit by €35;
- reducing the general child tax credit by €34;
- increasing the supplementary child tax credit by €135.
The funds for these measures will be generated by abolishing the ‘private PC scheme’ with effect from 17:00 on 27 August 2004, and making it impossible for employees to make use of the salary savings scheme with more than one employer in any one year.
Revenue from the increase in energy tax (as part of the corporation tax measures) will be channelled to private households through a €13 increase in the general tax credit (on top of a €30 increase to compensate for loss of purchasing power).
The measures proposed in the 2005 Tax Plan, together with the measures in the coalition agreements and the 2004 Tax Plan, will result in a 0.85% increase in the overall rate of the first tax band and a 1.45% increase in that of the second tax band. The rates for the first and second bands will then be 34.40% and 41.95% respectively.
Business climate
Corporation income tax reduction
The corporation income tax reduction and related measures are dealt with in a separate press release.
Facilitating business transfer
The exemption from inheritance and gift tax on the value of a business which is being transferred will be increased. Under certain conditions, 30% of business assets are currently exempt from this tax when a business is transferred. This exemption will be raised to 50% of the value of the business.
An employee or entrepreneur who wants to continue a business currently has to work with the seller for three years in order to make use of the tax-free transfer scheme for income tax purposes. The proposal is to shorten this period to two years.
Exemption from transfer tax for urban restructuring
To promote investment in urban restructuring in general and the development or redevelopment of industrial estates and urban business locations in particular, an exemption from transfer tax will be introduced for urban restructuring.
Increase in research and development rebate
The tax rebate for research and development will be increased, in order to promote process innovation. To improve productivity, the Netherlands will increasingly have to organise production processes more smartly.
Greener taxes
In line with the Policy Document on Traffic Emissions, the 2005 Tax Plan includes the following measures:
- reduction of €600 in car and motorcycle tax on clean diesel-engine passenger cars to encourage the fitting of soot filters in new diesel-engine vehicles. Particle emissions must not exceed 5 milligrams per kilometre;
- differentiation of excise duty on diesel according to sulphur content, with the rate for non-sulphur-free diesel oil being raised by 1 cent per litre. This measure will take effect on 1 July 2005, to give the sector time to modify the production process.
Reduction in tax rate for charities
For charities, the tax rate for gifts and legacies is currently 11%. This will be reduced to 8%. The report by the working group on the modernisation of the inheritance tax act recommended a general exemption for charities. However, as the government policy paper pointed out, there are no funds available to pay for a general exemption.
Abolition of option regime for share options
The Tax Plan proposes that share option rights should be taxed solely when the option rights are exercised or sold. The option regime for salaries tax purposes will thereby be abolished. This regime allowed taxpayers to opt for tax to be levied either when an unconditional share option right is assigned or when a conditional right of option becomes unconditional, or when the option right is exercised or sold.
This measure will make it impossible to realise untaxed (or partly untaxed) option profits, since no further options are possible and tax must always be paid on the actual gains. This will bring the situation in the Netherlands more into line with international practice, since most other countries levy tax when option profits are realised.
To prevent double taxation, transitional provisions will be introduced for options which were assigned unconditionally before 1 January 2005 and conditional options that become unconditional before that date.
Other measures
- The corporation surtax will be abolished with effect from 1 January 2005. It was due to apply until 1 January 2006 but will be abolished earlier because the preventive effect has been achieved.
- A minimum excise amount will be introduced for cigarettes and tobacco. The Senate requested this during the debate on the 2004 Tax Plan. A packet of 20 cigarettes from the lower end of the market, costing €2.90, is expected to rise in price by about €0.15 (including VAT). For a packet of rolling tobacco from the lower end of the market (€3.10 per 50 grams), the minimum excise amount is expected to generate to a price rise of about €0.20. The revenue will be used, inter alia, to broaden the corporation tax exemption for organisations that restore national monuments and historic buildings of cultural importance.
- The fictional rental value for owner-occupiers (EWF) will be adapted each year in the light of the average movement in rent levels. A new period under the Valuation of Immovable Property Act (WOZ) will begin in 2005 and the EWF will also be adjusted in line with the average change in the WOZ value. As a result, in 2005 the EWF will change from 0.85% of the WOZ value on the reference date of 1 January 1999 to 0.60% of the WOZ value on the reference date of 1 January 2003.
- The depreciation of health and safety equipment and the tax rebate for health and safety investments will be abolished with effect from 1 January 2005. Because an evaluation identified shortcomings in these schemes, they are due to be replaced on 1 January 2005 by a single grants scheme operated by the Ministry of Social Affairs and Employment.