Areas of Strength

• The Netherlands has a comprehensive tax gap estimation programme which was built over the past few years encompassing both direct tax gap and indirect tax gap estimation. This programme is complemented by a formal compliance risk management strategy in place, which allows for the identification, assessment, and prioritisation of key compliance risks. These complementary efforts have been successful, and The Netherlands performs well in terms of VAT compliance, for example, with a low VAT compliance gap, indicating effective tax collection and compliance efforts.
• The Netherlands has put in place a comprehensive reporting on tax expenditures, which provides transparency and accountability and a clear overview of the main drivers of tax expenditures as well as ways to tackle them. The governance framework provides for evaluation procedures and monitoring obligations and emphasises that tax expenditures should be modified or phased contingent on negative evaluation. This assessment framework on new and existing tax expenditures and regular evaluations aims to assure effectiveness of tax expenditures and simplicity of the tax system. Considering the clear governance rules related to tax expenditures, it is expected that the Netherlands reviews those tax expenditures which are identified as underperforming.
• The country has made significant progress in digitalising its tax administration, with high adaptation rates (with 100% e-filing rate for corporate income tax returns for example) and a digital transformation strategy (including an advanced use of AI), reducing the tax compliance burden for taxpayers. Improvements may nevertheless be needed regarding the pre-filling for CIT returns.

Areas for Improvement

• Despite its good monitoring and assessment, the Netherlands has several large tax expenditure items some of which have been identified as being potentially problematic. Among the biggest tax expenditures items are pension tax relief schemes and home ownership incentives. There could be scope to reduce incentives for debt-financed homeownership for example. Tax benefits are provided through generous mortgage interest deductibility, coupled with a low tax on imputed rents from homeownership. Consequently, there is a high concentration of household wealth in illiquid types of wealth, which may increase the severity of economic downturns and encourage tax planning strategies.
• The Netherlands could build on the thorough analytical work on tax expenditures to reduce the share of forgone revenue that is not achieving its intended policy goals. The latest 2025 government report evaluating tax expenditures provides evidence that some of these tax expenditures may be failing to achieve their intended goals. The report finds that out of the 89 tax expenditures evaluated, only 12 were found to be both effective and efficient, while 50 either lacked or had a limited rationale for government intervention.

Tax Complexity

The Netherlands ranks 7^th out of the 27 Member States in the Tax Complexity Index (‘TCI’) where a higher rank corresponds to lower tax complexity. The TCI is based on the Global MNC Tax Complexity Project, a joint research project of Deborah Schanz (LMU Munich) and Caren Sureth-Sloane (Paderborn University). The Netherlands score 1^st among the Member States with respect to Tax Framework Complexity, but at the same time rank 10^th in the Tax Code Complexity. This may indicate that whereas the tax processes carried out by the tax authorities are very efficient (notably, in the area of payment and filling, according to the authors), there might be some room for improvement in areas related to the structure of the tax regulations (e.g., general anti-avoidance).

The full Commission Staff Working Document of the Mind the Gap Report - Challenges and opportunities for tax compliance and tax expenditure in the EU regarding The Netherlands can be found here.

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