(a) Computation of Taxable Income and Deductions

28. The tax is assessed on the basis of a return, which is made on a form supplied to the company by the local inspector. The tax-year is the company’s accounting year; otherwise, the calendar year. The basis of assessment is the net income of the preceding accounting or calendar year. The basis embraces all income derived from the carrying on of a business and from investing capital outside the business, including profits made through the disposal of assets not belonging to the company’s stock-in-trade, and, in general, every gain made through sale.

29. Allowable Deductions. — In calculating net profit, the gross amount may be reduced by expenses incurred in the making, collection and maintenance of such profit. Deductions from gross profit include interest on loans, depreciation of assets used in the business, bad debts contracted in conducting the business and written off according to business usage, and the amount necessarily written off on account of the expiration of rights (e.g., leaseholds) which are subject to a limited period. In practice, taxes paid abroad on foreign income are deductible. A loss suffered in one year may be deducted from the profit made during the two succeeding years. Cost of organising, reorganising or increasing the capital of a company is deductible as from January 1st, 1933.

30. Non-allowable Deductions. — No deduction is allowed for capital expenditure, for the creation or increase of a reserve fund, for interest on capital invested in the business, or for any tax (i.e., the N.E.I. company tax or a foreign tax) on profits derived in N.E.I. The Ordinance allows no deduction whatever for payments out of profits, or surplus, with the exception of payments to the Government otherwise than as shareholder, and of payments (bonuses) granted for services rendered to persons other than managing directors, directors, managers or managing partners. When a company borrows from its shareholders amounts far in excess of what could be obtained from disinterested sources, no deduction is allowed for any interest on the part of the loan which exceeds that which could be borrowed from such disinterested sources. As the borrowing company is assessed, no tax is levied on the creditor company in respect of the interest in question.

31. Double Taxation Relief. — If a resident company pays tax to the Government of the Netherlands, Surinam or Curaçao or a foreign country, on profits derived from business conducted or property (including rights therein) situated within those countries, N.E.I. exempts two-thirds of the profit acquired in the Netherlands, Surinam or Curaçao, and half of the profit acquired in foreign countries. The same exemption is granted to resident companies holding 90 per cent of the registered stock of non-resident companies which are taxed by the above-mentioned Governments. The Governor-General has special powers to effect relief by ordinance (see paragraph 18). Non-resident companies are not taxable on profits derived from shipping between ports in N.E.I. and abroad (Company-Tax Ordinance, 1932, effective January 1st, 1933).

32. To prevent double liability to the N.E.I. tax, no tax is levied on dividends received by an N.E.I. or foreign company from an N.E.I. company or a foreign company deriving at least 90 per cent of its income from sources in N.E.I., provided the shares held in the distributing company are registered in the name of the shareholder.

33. Assessment of Non-resident Insurance Companies. — Special rules are given for the computation of the taxable income of foreign insurance companies. This taxable income is fixed for life insurance companies at 5 per cent, and for all others at 10 per cent, of the amount received in premiums or capital from insurees living or incorporated within N.E.I., or for risks within this country. No deductions are allowed for brokerage or other commissions, rebates, reinsurance or other expenses. As an exception to the preceding regime, the taxpayer may request to be taxed on an amount representing the same proportion of the whole net profit of the insurance business as the above-mentioned amount received in premiums and capital in N.E.I. bears to the total amount received in the same year in premiums and capital from insurees.

(b) Computation of Tax and Abatements

34. The tax is computed on the total net taxable income of the company at a proportional rate plus a surcharge (also proportional) on the preceding rate (see Annex).

35. No abatements are allowed against the tax. For double taxation relief, see paragraph 31.