By: Claudia Korevaar and mr. Eveline van der Wel MFP RB
In a previous report we informed you about the proposed law ‘Excessive borrowing from one’s own company’'. The law was announced last year on Prinsjesdag and was subject to internet consultation until April 1, 2019. The law has become a subject of discussion. As a result of the Tax Plan 2020, the final proposed law is expected to be submitted to the House of Representatives in the fourth quarter of 2019. In this blog we will list the most important points for you.
The law is intended to prevent that majority shareholders postpone taxation in box 2 (taxation in the case of a substantial interest) for a long time by borrowing from their own company. A majority shareholder is someone who owns a substantial interest in a company, namely 5% or more of the shares in the company. By borrowing the capital instead of distributing it as profit or salary, taxation is temporarily deferred.
The government wants to combat this form of tax avoidance. The proposal is aimed at majority shareholders who borrow more than €500.000,- from their own company. From January 1, 2022, the borrowed amount above €500.000,- will be taxed. The amount in excess of €500.000,- will be taxed as if a dividend had been paid to the majority shareholder.
There has been a lot of criticism on the law. For example, there was commotion about the fact that there might be double taxation in certain situations. It also remains difficult to determine the business nature of a loan below €500.000,-. Although the law is not final yet, it is certain that there will be adverse consequences for taxpayers who have debts of more than €500.000,- to their company. Until the final law is published, it remains to be seen to what extent the internet consultation will be met.
The following points of attention stand out in the proposed law:
If the majority shareholder has borrowed more than €500.000,- from his company, the excessive amount will be taxed as a fictitious dividend. This means that the borrowed amount is regarded as a dividend payment to the majority shareholder, as a result of which it is subject to dividend tax on the part in excess of €500.000,-;
Upon entry into force on January 1, 2022, the amount of the debt of the majority shareholder will be defined. 26.9% (rate as from 2021) income tax will be levied on the amount in excess of € 500.000,-. However, this does not mean that the debt has been repaid for that part;
The disposal discount may be applied once. This means that if the excessive loan has been taxed in 2022 and the majority shareholder subsequently sells its shares, he may deduct the amount that has already been taxed in 2022 from the sales revenue of the shares. (Temporary increase of the purchase price);
The threshold of €500.000,- applies to the majority shareholder and his partner together. Debts that the persons connected to the majority shareholder, such as his children, have to the company, are also included;
If the majority shareholder borrows money from several companies and holds 5% or more of the shares in these companies (direct or indirect substantial interest), the debts are added up;
Homeownership debts are excluded from the measure as long as a mortgage right has been granted to the company. This requirement does not apply to existing homeownership debts up to and including December 31, 2021;
For debts up to € 500.000,-, the obligation remains that the money may only be borrowed for business purposes and that the loan is granted under business conditions;
Receivables may not be set off against debts.
Due to the entry date of January 1, 2022, there is a relatively long preparation time. Based on the internet consultation, the first moment of defining the debt of the majority shareholder would be December 31, 2022.
If you have any questions regarding the law Excessive borrowing, please contact Eveline van der Wel.