Changes to the Dutch fiscal unity regime
Recently the Dutch State Secretary of Finance issued a decree to increase the possibilities to form a fiscal unity in the Netherlands between Dutch legal entities owned by a foreign parent company. The change is ultimately the result of a favourable decision of the European Court of Justice in June 2014.
The Dutch State Secretary of Finance now allows the formation of a fiscal unity in the following two situations between the involved Dutch legal entities:
- sister entities established in the Netherlands if the parent company is established in the European Union (or European Economic Area);
- a Dutch (ultimate) parent company and its Dutch sub-subsidiary if the latter is held by an intermediate legal entity established abroad within the European Union (or European Economic Area);
Benefits fiscal unity
The fiscal unity provides for tax consolidation of companies within a group by filing one consolidated tax return. The main benefits of such fiscal unity are:
- losses of one company can be set off against profits of another group company within the same fiscal year.
- transactions between group companies which are part of a fiscal unity are not recognised as the group is treated as one taxpayer, thereby allowing, amongst others, internal reorganisation of business assets and activities in a tax neutral way.
The most important implementation considerations are listed below:
- The foreign parent must own at least 95% of the shares in the Dutch entity
- Tax payers can elect to apply for the fiscal unity, however when the choice has been made it can no longer be reversed
- For a fiscal unity between Dutch sister entities, taxpayers can decide who will be the “parent company” for fiscal unity purposes.
- It is anticipated that anti-abuse provisions will be introduced to prevent double loss recognition (loss recognition in the Netherlands as well as in the country where the foreign parent is located)
- In most cases the preparation and calculation of the taxable income will be more complicated, since you cannot use for instance the consolidated commercial financial statements as starting point for the Dutch tax return.
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