On 31 October 2022, the Dutch government presented the legislative proposal to implement a ‘solidarity contribution’ for the fiscal year 2022. The proposal was drafted in response to Council Regulation (EU) 2022/1854 as an emergency intervention to address high energy prices. The Dutch proposal was adopted on 24 November 2022. In this newsletter we will inform you of the most recent developments concerning this solidarity contribution which will be due retroactively by certain Dutch corporate taxpayers that are active in the oil, gas, coal and refinery industries, as a result of which ‘surplus profits’ will be subject to a solidarity contribution of 33% (in addition to regular taxes/levies).
Council Regulation (EU) 2022/1854
On 14 September 2022, the Council of the European Union agreed to propose a regulation on emergency intervention in response to high energy prices. With this regulation, the Council aims to address the current price increases and thereby "contribute to the affordability of energy for households and businesses." This emergency regulation involves a mandatory temporary solidarity contribution, among other things.
On 6 October 2022, the Council of the European Union reached an agreement on the proposal. The solidarity contribution laid down in the EU regulation is a compulsory contribution for companies with ‘surplus profits’ from activities in the oil, gas, coal and refinery sectors. The solidarity contribution will be due on top of existing taxes and levies. Profits that have increased by at least 20% compared to the average taxable profit in the past four financial years since 1 January 2018 (‘reference profit’) are to be subject to the solidarity contribution at a rate of at least 33%. However, member states are free to apply a higher rate. Any member state implementing the EU regulation may choose for the contributions to be levied over 2022 and/or 2023. If a member state chooses to implement the solidarity contribution as of the year 2022, it will de facto have retroactive effect. As this can generally only be justified in exceptional circumstances, legislators of the member states need to provide carefully drafted reasons to justify this.
The Dutch implementation of the solidarity contribution
In response to the EU regulation, the Dutch government presented a draft proposal to the Lower House of Parliament on 31 October 2022. The proposal fits the framework as set out in the EU regulation, imposing a one-off solidarity contribution on corporate taxpayers in the gas, oil and coal sectors for 2022. The proposal was adopted on 24 November 2022. The revenues from the solidarity contribution serve (inter alia) as budgetary cover for the costs of the energy compensation measures for households. Below, we will outline in more detail the potential impact on affected businesses, the base for calculating the solidarity contribution, the rate and the payment procedure.
Rate and calculation of the solidarity contribution base
Any Dutch corporate taxpayer generating at least 75% of its annual turnover in the Netherlands from economic activities related to the production of petroleum or natural gas, mining, petroleum refining, or coke oven products will be subject to the Dutch solidarity contribution. The basis for the solidarity contribution is the so-called ‘surplus profit’. The surplus profit is the taxable profit generated in the fiscal year 2022 (the ‘contribution year’) to the extent that it exceeds 120% of the ‘reference profit’: the average taxable profit of the taxpayer during the four reference years prior to the contribution year (2018, 2019, 2020 and 2021). The Dutch rate for the solidarity contribution is 33%.
In the event of a fiscal unity for corporate tax purposes, the fiscal unity should be disregarded when calculating the surplus profit and/or reference profits and the solidarity contribution should be calculated on a stand-alone basis for each company. However, companies that are part of the same fiscal unity will be jointly and severally liable for the solidarity contribution payable (regardless of whether these companies themselves are subject to the temporarily solidarity contribution).
Method of levy
The solidarity contribution is levied by filing a tax return. This implies that taxpayers themselves must calculate and remit the solidarity contribution to the Dutch Tax Authorities. Taxpayers must file a special tax return and pay the contribution within 17 months calculated from the end of the contribution year (financial year 2022).
Retroactive effect of the Dutch proposal
As mentioned above, the EU Regulation allows member states to implement the solidarity contribution for 2022 and/or 2023. The Netherlands has decided to implement the solidarity contribution retroactively for the financial year 2022. The Dutch government considers that implementing the solidarity contribution with retroactive effect is in the public interest on the basis that specific and compelling reasons justify the implementation of the solidarity contribution retroactively. The government is of the view that there is a fair balance between the interests of the taxpayer on the one hand and the public interest on the other hand. It can be questioned whether this applies to all individual cases since the solidarity contribution may – under certain circumstances – have an excessive impact on the financial situation of individual companies. The Council of State as well as Members of Parliament have submitted questions regarding the necessity of the retroactive effect of the Dutch law. In this context the State Secretary has indicated that – generally speaking – he is of the view that there is a fair balance between the interest of the taxpayer on the one hand and the public interest on the other hand and that any taxpayer is free – as with any levy – to object and appeal against any tax or levy as assessed by the Dutch Tax Authorities.
It is noted that the Dutch law does not only have formal retroactive effect with its entry into force on 1 January 2022, but it also material retroactive effect, as the reference period for the calculation of surplus profits stretches back to the financial year 2018.
In absence of any further guidance, the Dutch legislation raises various questions. A few examples that have also been raised during the parliamentary discussion are mentioned in more detail below.
It is noted that the total profits of a Dutch taxpayer (or a Dutch permanent establishment) in scope are the base for the calculation of the solidarity contribution, regardless of the question whether these profits are all generated from activities in the oil, gas, coal and refinery industries. This may effectively lead to excess profits from non-fossil activities also becoming subject to the solidarity contribution. It is questionable whether this is in line with the objective of the EU Regulation. In the absence of any guidance, it is for now uncertain how the Dutch Tax Authorities will in practice assess this.
In addition, the Dutch legislation raises questions regarding the calculation of the surplus profits and reference profits that are based on the increase of taxable profits in a fiscal year above an increase of 20% (rather than the increase of commercial profits, which may be different). This may be controversial as there are many circumstances in which taxable profits are calculated differently than commercial profits.
Finally, the Dutch legislation does not contain any rule regarding the calculation of the excess profits in the reference period in the event of operational investments/acquisitions.