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Revised Dutch fiscal unity regime welcome step in facilitating post-acquisition and post-merger integration

Impact BEPS on transfer pricing documentationOn December 11, 2014, the Amsterdam Court of Appeal held that the Dutch fiscal unity regime is incompatible with the EU freedom of establishment because it does not allow application of the fiscal unity regime in some cross-border situations. In anticipation of adjustments to the Dutch legislation as a result of the court’s decisions, the Dutch Ministry of Finance published a decree implementing revisions to the fiscal unity regime. The outcome of the proceedings is welcome step, especially for multinational groups as it facilitates post-acquisition and post-merger integration.

The Dutch Fiscal Unity Regime

Under the Dutch Corporate Income Tax Act, a parent company and one or more of its subsidiaries can elect to be treated as a single taxpayer for corporate income tax purposes, a fiscal unity. The most important advantages of the regime are:

  • availability of profit and loss compensation between fiscal unity members; and
  • transactions between fiscal unity members, for instance those resulting in the recognition of otherwise taxable goodwill or silent reserves, are disregarded.

One of the requirements imposed is that fiscal unity members (which can also be a Dutch permanent establishment (PE) of a non-Dutch resident company) be resident in the Netherlands. Thus, under the current legislation the fiscal unity regime is not available for:

  • a Dutch resident parent company and a Dutch resident sub-subsidiary without also including a Dutch resident intermediate subsidiary (the “Parent / sub-subsidiary situation“); and
  • Dutch resident sister companies held by a mutual non-Dutch parent company (the “Sister situation“). 

The cases at issue

Three cases were brought before the Dutch court, all having in common that certain group companies were established in other EU member states not having a PE in the Netherlands. Two cases concerned the Parent/sub-subsidiary situation, and one concerned a Sister situation.

The Dutch tax administration denied the three fiscal unity requests on the basis that the intermediate subsidiary in another member state respectively — in the sister situation — the parent company in another member state was not included, while the Dutch fiscal unity regime requires that the shares of all fiscal unity members are directly held by one or more fiscal unity members. However, in the cases at hand the intermediate subsidiary respectively — in the sister situation — the parent company could not be included given it is not resident in the Netherlands and did not have a permanent establishment in the Netherlands.

This ultimately lead to a decision of the Court of Justice of the European Union (ECJ) ruling that in both situations the denial of access to the Fiscal Unity Regime constitutes a non-justifiable restriction on the European freedom of establishment. The Amsterdam Court of Appeal, following the ECJs decision consequently held the current Dutch fiscal unity regime to be incompatible with the European freedom of establishment and that the Dutch tax authorities should grant access to the fiscal unity regime these situations.

Revisions to the Dutch Fiscal Unity Regime

Shortly thereafter, the Ministry of Finance published a decree, implementing the revisions to the fiscal unity regime, in anticipation of adjustments to the Dutch legislation resulting from the court’s decision. Under the revised fiscal unity regime, requests to form a fiscal unity will now also be granted to:

  1. Dutch resident sister companies held directly or indirectly by a mutual parent company in another EU Member State or a country belonging to the European Economic Area (EEA).[1]
  2. a Dutch resident parent company indirectly holding shares in a Dutch sub-subsidiary through one or more non-Dutch EU Member State or EEA intermediate subsidiaries.[2]

The decree does not impact already existing fiscal unities, and nor does it apply to non-EU and non-EEA parent companies or intermediate subsidiaries.

The amendment of the Fiscal Unity Regime has retroactive effect to December 16, 2014. The outcome of the proceedings is welcome step, especially for multinational groups as it facilitates post-acquisition and post-merger integration. The outcome is also welcome in situations where internal reorganization is not possible due to legal (e.g., restrictive banking covenants) or local tax restrictions or where the group is organised according to divisions rather than to geographical regions.

[1] To the EEA currently belong all EU Member States, Liechtenstein, Norway and Iceland.

[2] In a Dutch situation it is not possible to form a fiscal unity between the Dutch parent company and its Dutch sub-subsidiary without including the Dutch resident intermediate subsidiary.

Over de auteur

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Stephanie van der Schaft

Stephanie van der Schaft is a member of the Tax group. She advises on Dutch corporate, individual and international tax law with particular emphasis on corporate restructurings and the advance tax ruling practice area. Prior to working in our Amsterdam office, she worked for two years in the Hong Kong - China tax practice in our Hong Kong office, and is coordinating many (large) international tax projects.