Short Reads

Abolishment of tax deductibility of coupon payments on AT-1 capital instruments announced per 1 January 2019

Abolishment of tax deductibility of coupon payments on AT-1 capital i

Abolishment of tax deductibility of coupon payments on AT-1 capital instruments announced per 1 January 2019

03.07.2018 NL law

On Friday 29 June 2018, the Dutch government made public its intention to abolish article 29a Dutch corporate income tax act ('DCITA'), per 1 January 2019. As a result of the abolishment of this provision, coupon payments on so-called additional-tier 1 ('AT-1') capital instruments made by banks and insurance companies will no longer be tax deductible. The amendment of the DCITA, which is aimed to be included in the tax package for 2019, will apply to coupon payments made after 1 January 2019, irrespective whether it concerns new or already existing AT-1 instruments.  

According to 29a DCITA, coupon payments on AT-1 instruments made by banks and insurance companies are currently deductible for DCITA purposes. The Dutch State Secretary of Finance, however, wants to abolish this rule per 1 January 2019 for various reasons. In the view of the State Secretary, the tax deductibility of AT-1 coupon payments provides for an incentive to attract AT-1 capital, instead of real equity (‘core capital’). Furthermore, the State Secretary puts forward that the government is aiming for a more equal treatment of equity and debt for tax purposes, which is achieved by making debt financing less attractive from a tax perspective. In a memorandum of February of this year, dealing with measures to counteract tax avoidance and evasion, this argument was also used by the State Secretary of Finance to substantiate why the earning stripping rules to be introduced per 1 January 2019 will not include a group escape rule (which is included in the ATAD directive). In the February 2018 memorandum, the argument is also used to introduce a generic thincap rule per 2020, which rule is expected to be especially relevant for banks and insurance companies. The announced thincap rule was already seen as a defacto by-passing of article 29a DCITA, because the thicap rules require a minimum equity percentage of 8. 

Another reason why article 29a DCITA will be abolished per 2019, is pressure from the European Commission ('EC'). Already back in 2015 the EC raised the question whether article 29a DCITA could constitute state aid. In another letter, dating from June 2018, the EC is asking The Netherlands to amend their regime to take away the state aid concern of the EC. In this letter, the EC also makes clear to have reviewed the tax treatment of AT-1 capital instruments in other Member States, and where necessary, Member States were asked by the EC to take action where needed from a state aid perspective. 

After the abolishment of article 29a DCITA, the question remains how to qualify (debt or equity), the AT-1 capital instruments when looking at the tax case law of the Dutch Supreme Court. According to the Dutch State Secretary, the AT-1 capital instruments would in that case qualify as equity, but whether this indeed is the case remains to be seen. When looking into this question, also the (possible) effects of the thin cap rule, which likely will be introduced per 2020 (see above), should be taken into consideration. 

Team

Related news

10.12.2019 NL law
David Orobio de Castro, Michael Molenaars and Job van Hooff new board Stibbe in Amsterdam

Inside Stibbe - As of 1 January 2020, David Orobio de Castro, Michael Molenaars and Job van Hooff will form the new board of Stibbe in Amsterdam. David Orobio de Castro has been on the board of Stibbe since 2016 and succeeds Derk Lemstra as managing partner. After a period of six years on the board, Derk will once again fully focus on advising clients in the field of corporate law.

Read more

08.11.2019 BE law
Interview with Wouter Ghijsels on Next Gen lawyers

Articles - Stibbe’s managing partner Wouter Ghijsels shares his insights on the next generation of lawyers and the future of the legal profession at the occasion of the Leaders Meeting Paris where Belgian business leaders, politicians and inspiring people from the cultural and academic world will discuss this year's central theme "The Next Gen".

Read more

05.11.2019 LU law
Stibbe renforce son cabinet au Luxembourg avec l’arrivée de Johan Léonard en qualité d’associé au sein du département de droit fiscal

Inside Stibbe - Luxembourg, 5 novembre 2019 – Stibbe renforce son cabinet luxembourgeois avec le recrutement latéral de Johan Léonard, associé au sein de la pratique de droit fiscal. Son arrivée permettra au cabinet d’augmenter son offre fiscale au Luxembourg afin de mieux répondre à l’évolution des besoins du marché. Johan a rejoint Stibbe le 4 novembre 2019.

Read more

27.09.2019 NL law
Stibbe is attending the IBA's annual conference in Seoul

Conference - The annual conference of the International Bar Association (IBA) is currently taking place in Seoul. There are fourteen partners from Stibbe attending the event. Several of them have speaking slots on a wide range of legal topics and will take part in various panel discussions.

Read more

Our website uses functional cookies for the functioning of the website and analytic cookies that enable us to generate aggregated visitor data. We also use other cookies, such as third party tracking cookies - please indicate whether you agree to the use of these other cookies:

Privacy – en cookieverklaring