Dutch EU Commissioner Hoekstra’s tax plan could cost Netherlands €8 billion a year

European Commissioner Wopke Hoekstra’s draft European taxation proposal is projected to cost the Dutch national treasury an estimated €8 billion per year once it is fully phased in by 2037.

The proposal aims to make cross-border investments within the European Union much cheaper and easier. However, analysis by Leiden University tax law professors Jan van de Streek and Jan Vleggeert reveals that the plan will inadvertently strip the Netherlands of several major revenue streams.

According to the RTL Nieuws report, the total cost is divided across three structural loopholes created by the proposal. Hoekstra's plan intends to exempt all cross-border shareholdings between EU corporations from dividend taxes. Currently, the Netherlands only grants this exemption to significant stakeholders holding at least 5% of a company.

Shrinking this threshold to 0% means foreign investors with small stock portfolios will no longer pay Dutch dividend tax, erasing €4 billion annually from state coffers.

The proposal mandates that EU member states allow corporations to deduct a significantly higher percentage of their interest expenses from their taxable profits. Allowing companies to offset more debt against their earnings will shrink corporate tax revenue by billions.

The combination of these new EU rules and the upcoming Dutch Box 3 wealth tax reforms will heavily incentivize wealthy private individuals to move their assets out of personal savings accounts. Instead, they will set up private limited companies (BVs) to bypass wealth taxes, routing their private capital into lower-taxed corporate brackets (Box 2).

Hoekstra has publicly pushed back against these domestic concerns. He stated to BNR Nieuwsradio that the fear of a massive flight to BVs is overblown and that the macroeconomic benefits of fluid cross-border investing will bolster long-term economic growth across the single market.

Nevertheless, tax experts warn that the rules will allow banks and brokers to easily craft legal structures for retail investors to permanently dodge Dutch dividend tax obligations.