Dutch Cabinet delays tax avoidance measures amid EU rule changes

The Dutch government is delaying new policies to combat tax base erosion caused by excessive financing structures in real estate investments. This decision follows proposed relaxations to the European Commission’s ‘earnings stripping’ rules, which limit the amount of interest companies can deduct from taxable profits.

The European Commission’s Omnibus proposal suggests increasing the interest deduction limit from 24.5 percent of EBITDA to 30 percent and raising the threshold from €1 million to €3 million. The Dutch Cabinet fears these changes could undermine existing national measures against tax avoidance and profit shifting.

Currently, real estate investors may use multiple companies to exploit interest deduction thresholds or convert equity into loans to lower taxable profits. While the Dutch Tax Administration is investigating dozens of excessively financed real estate companies, a lack of central administration and limited oversight capacity makes it difficult to determine the full scale of the issue. The government is evaluating three policy options, including lowering thresholds or making interest on certain intra-group loans non-deductible, but will wait for the outcome of European negotiations before proceeding.