Global

Details

  • Service: Tax, Global Compliance Management Services, International Tax
  • Type: Regulatory update
  • Date: 12/18/2013

Netherlands - Deductible “additional Tier I capital” (hybrid instrument) returns 

December 18:  The Dutch Deputy Minister of Finance on 16 December 2013 announced that banks will be able to deduct, for tax purposes, the returns realized on “additional Tier 1 capital” even if issued after 1 January 2014.

Hybrid capital instruments (i.e., additional Tier 1 capital) consisting of both equity capital and debt can, to a limited degree and subject to conditions, be included in the core capital.


Hybrid instruments are distinguished on the basis of their innovative character—i.e., whether or not specific conditions apply that act as an incentive for early repayment. For tax purposes, the Netherlands treats “additional Tier 1 capital” that is issued under the current capital requirements framework as debt, which means that returns on these instruments will be tax deductible.


Beginning 1 January 2014, the capital requirements directive will apply. As such, additional Tier 1 capital that is issued after 1 January 2014 can no longer be regarded as debt. The related interest will no longer be deductible.


However, in a letter dated 16 December 2013, the Deputy Minister indicated that banks will be able to deduct, for tax purposes, the returns on additional Tier 1 capital, even if issued after 1 January 2014, to be taxed at the recipient level.


Read a December 2013 report prepared by the KPMG member firm in the Netherlands: Tax treatment of additional Tier 1 capital




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