The caretaker government may make the Netherlands a less attractive location for international business because of changes to the corporate tax system, the employers’ organisation VNO-NCW and tax advisers have warned, the Financieele Dagblad said on Monday.

The employers and Dutch Order of Tax Advisors say the government is choosing the wrong parts of a European directive to tackle tax avoidance to incorporate into domestic law.

They made their comments in response to the online consultation process on a new bill that concluded last week.

The new rules, incorporating the EU’s anti-tax avoidance directive into Dutch legislation are supposed to come into effect by the beginning of 2019. The aim is to respond to the growing public and political concern about tax avoidance and harmful tax competition between countries, the paper said.

The critics are most unhappy about Dutch plans to deal with the deduction of interest from taxable income and the transfer of profits to subsidiaries in countries with little or no tax on profits.

Inter-company loans

Multinationals reduce their taxable profit with inter-company loans on which they pay interest and deduct it from the profit in countries with high tax rates. The interest is paid in countries that levy little or no tax on it.

The EU directive limits the tax deduction for interest payments to 30% of a company’s operating result but does open the door to deviate from this rule. However, employers and tax advisors say the Netherlands has failed take advantage of the option to deviate. Nor has it adopted a transitional arrangement for loans dating from before 17 June 2016.

‘A general restriction on the interest deduction is overkill for companies where there are no abuses and where tax avoidance is not a factor at all,’ the VNO-NCW said.