Dutch green incentives offer possible financing angle
By Waldo Kapoen & Harmen Zeven
Two tax incentives for Dutch companies to make “green” investments may offer an angle for financing projects in Holland and eastern Europe. The two incentives are a discretionary accelerated depreciation facility, called “VAMIL,” and a special deduction from taxable profit for energy-saving investments, called “EIA.”
Regulations implementing the VAMIL program have been in effect since September 1991. “VAMIL” is an acronym for a phrase that translates from Dutch as “discretionary depreciation of ecological investments.” The depreciation can be all at once, accelerated or also more gradual as desired by the investor. As soon as the equity participant enters into commitments or pays production costs, discretionary depreciation is possible. However, before actual use of the asset commences, only costs actually paid can be depreciated. The VAMIL regulation is aimed primarily at encouraging domestic investment. However, the state secretary in Holland indicated in a state resolution that investments in assets in certain countries in central and eastern Europe also qualify potentially.
The assets must appear on the so-called VAMIL list published in a ministerial regulation. They must have an important environment-improving effect. They must be based on new technologies that are not currently in use in Holland. It is sometimes possible to add other assets to the list. For certain assets, additional conditions are imposed. The assets must not have been used already.
In the case of investments outside Holland, the investment must have the effect of reducing air or water pollution in Holland. If only part of the investment qualifies, it is possible to make use of the discretionary depreciation method for the qualifying part. Intangible assets, like licenses, patents or software, do not qualify. There is no minimum investment amount required.
Within three months after entering into commitments or paying production costs, the investment must be submitted to the Ministry of VROM (Public Housing, Physical Planning and Environment) together with an auditor’s report confirming the amount of the investment and that the assets are on the VAMIL list. The inspector has the right to deny benefits if the three months have already run. However, foreign investments must be submitted first to the Ministry of Finance for a determination that the investment contributes to an improvement of the environment in Holland.
An extra deduction for energy-saving investments has been available since January 1997. The owner of the project can deduct a certain percentage of his investment from taxable income. The percentage is 40% for investments between ƒ495,000 and ƒ205 million.
Unlike VAMIL benefits, the EIA benefit is available only for new projects situated in Holland.
The taxpayer must in fact run the enterprise that owns the project for its own account, although sale-leaseback transactions have sometimes been used to transfer the EIA benefit to another company that has the tax base to use it. Such transactions require an advance ruling.
The assets must not have been used already. The taxpayer must apply for a declaration from the Ministry of Economic Affairs that the investment is on an approved list. Certain assets are excluded from EIA by law. The program is subject to budget limits, so it is possible that in a year when the budget threshold is breached, the deduction percentage will be smaller than 40%. It is not clear whether the adjustment will only affect projects at the end of the queue for a year or all projects during the year.
by Waldo Kapoen and Harmen Zeven, with Loyens & Volkmaars in The Hague