Tips to Avoid Fiscal Repercussions of The Economic Crisis
Written by: Lisbeth De Laet
A couple of years ago the economic crisis hit rock bottom. In order to avoid losses and distort the continuity of their business encounters, many entrepreneurs introduced the necessary changes. Now that the crisis has passed it’s low point, it is time to re-evaluate these adjustments. Past changes could have significant repercussions, especially since the new Cabinet Rutte III introduced several major changes to the Dutch tax system. Therefore, it is to your benefit to perform a timely fiscal revision of your enterprise.
On the verge of drowning in economic misfortunes, shareholders as well as companies granted loans to (related) companies in order to secure their continuity. This continuity may now be jeopardized, though. Rutte III introduced a mandatory test to verify the arm’s length principle of indirect third-party loans to international related bodies. These loans, which are in fact owed to an independent third party, are often used to avoid taxes. As a result, the Dutch tax authorities will not grant a deduction of interest on such loans. Hence, debtors must now conduct the so-called double business motive test. Only when business motives prove to be the cause of the debt and the related legal act, they maintain the right to deduct interest on the loan. A more detailed information can be found here.
It might be that not even loans were able to save your enterprise from drowning. A possible solution is to form a fiscal unity so as to offset losses. Yet, this solution may no longer be advantageous if your profits are increasing while corporate income tax rates, on the other hand, have decreased. Hence, it might be to your benefit to dissolve the fiscal unity (and minimize the liability risk). To verify whether or not this applies to your enterprise, we can go over the possible fiscal claims the dissolution of the fiscal entity can cause.
A dissolution can also be the solution you are after for a single company that lost its function during the economic crisis. Entrepreneurs tend to rely on the structure of a limited liability company to diminish losses of paid-in capital. Another, and perhaps more effective, solution is to reconsider the legal form or status of your enterprise. You might benefit from the fiscal advantages a sole proprietor or a proprietary have to offer. Accordingly, we can advise you on the best legal form to serve your purposes and minimize your tax burden.
Sale or transfer of your enterprise
Finally, many entrepreneurs have to resort to the sale or transfer of their enterprise. In this case, a sound bookkeeping and administration are indispensable to avoid any additional losses. You thus have to make sure rental and management agreements, as well as employment contracts unambiguously convey your intentions and goals.
At least as important is your bookkeeping. A company must answer for every tax return filed in the five years before it is taken over. Since avoiding errors is a Sisyphus task, such an tax audit generally leads to additional taxes, tax interest and/or tax penalties. Hence, you should avoid mistakes in your bookkeeping instead of fixing them when they come to light. We offer you an due diligence or examination of your bookkeeping. By expressing detected risks in monetary values, we provide you with the necessary handhold to properly address these risks. In addition, a timely due diligence offers you the benefit of adopting your bookkeeping and administration to avoid similar mistakes in the future. Our blog about avoiding undesirable tax repercussion elaborates on the subject.
Rutte III made wave by announcing the reduction of corporate income tax rates and the abolishment of dividend withholding tax. Whether or not the new Cabinet can translate these words into action, still remains to be seen, though. We thus advise to seek further information and read our blog pending withholding tax changes to the benefit of international business enterprises.
Please feel free to contact us for more information.