On October 16, 2015 a bill to amend the fiscal unity regime was presented to the Lower House. The bill first and foremost provides for an amendment in response to case law of the Court of Justice of the European Union (CJEU) and subsequent judgments from the Court of Appeals Amsterdam, which ruled that parts of the Dutch fiscal unity regime for corporate income tax purposes were contrary to the European freedom of establishment. In anticipation of this bill, the Deputy Minister of Finance had already published a policy statement on December 30, 2014, which granted, under certain conditions, requests for a fiscal unity of sister companies of an EU- or EEA-resident parent company, and for a fiscal unity between a domestic parent company and domestic sub-subsidiaries that are held through one or more EU- or EEA-resident intermediate holding companies. Please refer to our earlier report on this. The bill codifies the policy statement and provides more details on what is possible under the policy statement. It also makes it easier to include Dutch permanent establishments of companies resident elsewhere in the EU or EEA in a fiscal unity.And lastly, it tightens the ownership requirement.

Amendments to reflect EU law

Expansion of opportunities to form a fiscal unity

Under the bill, it is possible to form a fiscal unity between:

  1. domestic sister companies that are held by a top company from another EU/EEA Member State (fiscal unity of sister companies);
  2. a domestic parent company and a domestic sub-subsidiary that is held by an intermediate company from another EU/EEA Member State (fiscal unity between parent company and sub-subsidiary).


Re 1)

The bill contains conditions for qualifying as a top company that are similar to the conditions currently applicable under the policy statement. An additional condition also applies: the top company must not have a permanent establishment in the Netherlands. The reason for this is that the permanent establishment could otherwise be excluded from the fiscal unity. This exception does not mean that the permanent establishment could not be included in the fiscal unity. As is now the case under the policy statement, parties are, in principle, free to choose which sister company is to be regarded as the parent company of the fiscal unity. This choice must be made in the request for a fiscal unity. In the case of an inclusion during the course of the year, the entities to be included close their financial year immediately prior to the establishment of the fiscal unity. The activities and assets of the sister company that is regarded as a subsidiary subsequently form part of the activities and assets of the sister company that is designated as parent company. This leads to consolidation (and a tax-exempt equity increase) atthat parent company.

Re 2)

The bill contains conditions for qualifying as an intermediate company that are similar to the conditions currently applicable under the policy statement. An additional condition also applies: the intermediate company must not have a permanent establishment in the Netherlands. The reason for the exception is the same in this case, i.e. the permanent establishment could otherwise be excluded from the fiscal unity. This exception does not mean that the permanent establishment could not be included in the fiscal unity. If a fiscal unity is created through an intermediate company, the participation exemption continues to apply to the interest in the intermediate company as if no fiscal unity existed. This is explicitly laid down in the bill. In addition, the activities and assets of the sub-subsidiary are consolidated at the parent company level, and consequently there is a (tax-exempt) equity increase there.

The bill also makes it easier to include a Dutch permanent establishment of entities resident elsewhere in the EU/EEA in a fiscal unity. It will be possible to form a fiscal unity between the Dutch permanent establishment of an entity resident elsewhere in the EU/EEA if that entity holds at least 95% of all the shares in that Dutch company, even if these shares do not form part of the assets of the Dutch permanent establishment.

For existing fiscal unities, the condition that a fiscal unity can only be formed if this involves companies in an unbroken vertical chain, will continue to apply.

Measures against double loss set-off and modification of the deduction limitation for participation interest

The bill contains measures against double loss set-off. For example, in a parent - sub-subsidiary fiscal unity the parent company may have a receivable from the intermediate company. This receivable can decline in value as a result of the fact that the sub-subsidiary is loss-making. The loss suffered by the sub-subsidiary can however be set-off within the fiscal unity against the profits of the parent company. To avoid double loss set-off occurring in this type of situation, rules have been proposed that would prohibit receivables in such cases being written down against the profit of the fiscal unity. The liquidation loss rules have also been amended to avoid a double loss set-off when an intermediate company is liquidated.

Lastly, the bill amends the deduction limitation for participation interest. In short, this provision limits the interest deduction on loans entered into in order to finance participations in those cases where there is excessive debt financing. As previously stated, a tax-exempt equity increase at the level of the parent company also occurs in a parent - sub-subsidiary fiscal unity. As the participation in the intermediate company also remains on the parent company’s balance sheet, this can, under certain circumstances, give rise to a double count that leads to more participation interest being deducted than would be consistent with the spirit and intent of the provision. The same double count can arise if a Dutch permanent establishment of an entity resident elsewhere in the EU/EEA is included in the fiscal unity. The proposal to amend the deduction limitation for participation interest is intended to eliminate such inappropriate double counts.

Tightening of the ownership requirement

The bill has significantly tightened the ownership requirement. Under current law, a taxpayer must, directly or indirectly, have at least 95% of the legal and beneficial ownership of the shares in the Dutch company that is to be included in the fiscal unity. The Supreme Court considers having de facto control to be decisive for legal ownership. This means that at present a fiscal unity can be formed between the holder of a depositary receipt and a private limited liability company (besloten vennootschap; BV) of which the shares are certified through a trust office foundation (stichting administratiekantoor), provided that the foundation exercises the voting rights to those shares according to the instructions of the holder of the depositary receipt/parent company without needing to obtain the approval of a third party. It is proposed that in future the taxpayer must have at least 95% of the full legal ownership of the shares. The ownership requirement is not met where the shares are fully or partly certified, unless this certification takes place through, for example, a BV that is also part of the fiscal unity. The tightening also affects the opportunities to form a fiscal unity if foreign hybrid entities are part of the structure. A transitional period of two years after the presentation of the bill applies to existing cases.

Commentary by Meijburg & Co

In September 2015 the CJEU rendered judgment in the French Groupe Steria case. The Deputy Minister has indicated that this judgment will be studied in more detail in order to determine whether there will be consequences for the Dutch fiscal unity, and if so, what these are. This leaves open the possibility that the necessary clarity can only be obtained after new case law has been rendered. The Deputy Minister also explicitly notes that, with regard to the present bill, it is currently not possible to precisely foresee which inappropriate situations could arise and which measures will be needed to respond to these situations. Despite this, the bill has nevertheless been presented to the Lower House, given that it was necessary to bring the fiscal unity regime in line with CJEU case law that firmly established that parts of the regime are contrary to EU law. However, it should also be noted that the Dutch fiscal unity regime may once again be amended in the near future in response to both the abovementioned other case law and developments in practice.

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