Private equity tax break after summer

Cabinet plans to tackle the way private equity firms can avoid tax by saddling the companies they buy with debt will be delayed until after the summer, the Volkskrant reports on Tuesday.

Junior finance minister Jan Kees de Jager had been planning to introduce legislation before the summer. He aims to end the abuse of the tax break which allows companies to reduce the tax they pay on their profits by deducting the interest on debts from the gross profit total.
De Jager has now agreed to introduce a new round of consultations with tax advisers, academics and company bosses, the paper says. The move involves complicated fiscal matters which have significant impact on the Netherlands’ role as a good location for foreign companies, De Jager is quoted as saying.
Vested interests
‘Before we make a definite choice, we want to have a broader picture of the vested interests and what the effect of alternatives is likely to be,’ he told MPs.
De Jager is looking at two variations. One is specifically aimed at companies which look for loopholes, the other will target companies with a lot of debt. The first approach is fairer but the second easier to implement, the Volkskrant says.
Next year
De Jager says he still aims to bring in the new law next year. He expects the changes to net an extra €2bn a year for the treasury.
That money will go back to companies, he says, although details of how this will be achieved have not yet been worked out. One option would be to lower corporation tax, currently around 25%. This could be problematic because some countries, such as Japan, will not do business with countries where corporation tax is lower than 25% because they are considered to be tax havens, the paper says.
Research by the Volkskrant last year showed companies such as NXP, Hema and Ziggo had been loaded with debt by their new owners. By deducting the interest from earnings, the companies make a loss on paper and have to pay very little tax. MPs have urged De Jager to tackle this.

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