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Dutch fiscal unity with Grandparent Company

The Dutch fiscal unity regime provides for a 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 recognized as the group is treated as one tax payer, thereby allowing, amongst others, internal reorganisation of business assets and activities in a tax neutral way.

Main conditions for the fiscal unity

The Dutch tax rules require a direct ownership between the parent company and the subsidiaries that join the tax group. The parent must own at least 95% of the shares in the subsidiary. Another condition is that the parent as well as the subsidiary must be tax resident companies in the Netherlands. Some years ago, the rules have been amended, allowing that a Dutch branch of a foreign company can qualify as a parent company.

Fiscal unity with Grandparent Company

If a Dutch company holds a Dutch subsidiary through a foreign company, the rules do not allow that such Dutch subsidiary joins into a fiscal unity with its Dutch Grandparent Company. The foreign link is prohibitive for that purpose (unless that foreign intermediary company has a Dutch branch).

In a recently published case, a Dutch Holding BV wanted to create a fiscal unity with some subsidiary BVs although these subsidiaries were 100% owned by a German AG. The Holding BV owned 97% of the shares in that German AG. It was no surprise that the Dutch Revenue rejected the fiscal unity application. A lower tax court had decided, however, that there is no valid reason for the Dutch Revenue to reject a fiscal unity in all cases where the shares are indirectly owned through a foreign intermediary company. The harsh limitations now included in the Dutch fiscal unity regime are in conflict with the EU Freedom of Establishment.

Other cross-border fiscal unities

The story of cross border Dutch fiscal unities will continue. Recently the Amsterdam tax court referred three cases to the European Court of Justice regarding the compatibility of the Dutch fiscal unity regime with EU law.

Also these cases deal with the denial of the benefits of consolidation regarding Dutch companies that are held through EU resident companies. One of the cases deals with a German parent company that directly holds multiple Dutch subsidiaries. The German parent wants to create a fiscal unity between those Dutch sister companies.

While the cases are limited to EU situations there might also be possibilities to claim similar benefits in case the foreign link is through a company resident in a third country. If that third country has a Double Tax Treaty with the Netherlands that includes a foreign ownership non-discrimination clause, similar benefits might be available.

It is interesting to observe that the Dutch cases seem to fit into an international trend. Recently UK tax courts ruled that denying the application of the UK group relief system between two UK resident companies held through a non-resident link violates the non-discrimination article of the applicable tax treaty (Felixstowe Dock and FCE Bank cases).

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