Tightening of the earnings stripping rule (status: not substantively enacted)
The earnings stripping rule limits an entity to deduct interest up to the higher of 30% of fiscal EBITDA or EUR 1 million. It is proposed that the 30% of fiscal EBITDA will be lowered to 20 % of fiscal EBITDA entailing a further limitation of the deductibility of interest for companies.
The interest expense part that cannot be utilized based on this rule can be carried forward indefinitely to future years. The non-deductible interest expenses may then – under conditions – be used in future years. As such, for companies that are dealing with non-deductible interest under this rule, recognition of a deferred tax asset should be considered.
Both IFRS and Dutch GAAP prescribe that the following sources of income should be considered for recognition of a deferred tax asset in relation to non-deductible interest:
- the reversal of (qualifying) deferred tax liabilities; and / or
- sufficient future taxable profit.
The limitation from 30% to 20% could affect the deferred tax asset recognition for the non-deductible interest. The accounting treatment under Dutch GAAP is the same as the accounting treatment under IFRS.
The final version of the 2022 Tax Plan is expected to be (substantively) enacted in December 2021. The proposal is expected to enter into effect on 1 January 2022. This proposal, when (substantively) enacted, could have an impact on the 2021 financial statements.