From the Netherlands: Major (Retro-active) Amendments on Dutch Corporate Income Tax Fiscal Unity Regime
The Dutch corporate income tax fiscal unity regime involves a full tax consolidation regime. Fiscal unity member companies’ taxable profits and losses may be offset against each other. Intra-group transactions or financing positions between members are in principle disregarded for Dutch corporate tax purposes. The effect of a fiscal unity being regarded as a single taxpayer is also that establishing a fiscal unity allows to avoid the application of certain anti-abuse rules (e.g. limitation on interest deduction rules) which may have applied if the member companies had not been included in a fiscal unity (and had been subject to Dutch corporate tax on a stand-alone basis). This is a benefit available only in domestic situations, as only Dutch resident companies can be included in a fiscal unity.
The European Court of Justice (ECJ) confirmed earlier that it does not require the Netherlands to allow for a full-fledged fiscal unity in cross-border situations resulting in the importation of foreign tax losses (X Holding, case C-337/08). On February 22, 2018, however, the ECJ ruled that particular elements of the Dutch fiscal unity regime may nevertheless be in conflict with the EU freedom of establishment (case C-398/16). In this case, the Dutch taxpayer had - on the basis of the Dutch anti-base erosion regulations - been denied interest deduction on an intra-group loan used for funding a capital contribution to its Italian subsidiary. The taxpayer argued that this limitation on interest deduction had not applied if it would have been allowed to be included in a fiscal unity with its Italian subsidiary (which would have been possible in case the Italian subsidiary had been a Dutch tax resident). The ECJ ruled that this element of the Dutch fiscal unity regime is in conflict with the EU freedom of establishment.
Already on October 25, 2017, when the Advocate - General rendered his Opinion in the above ECJ case, the Dutch State Secretary of Finance announced the introduction of ‘repair measures’ if the ECJ would rule there to be a conflict with the EU freedom of establishment (as now has been ruled). These measures will have a serious (negative) impact on the Dutch fiscal unity regime. Instead of extending specific fiscal unity benefits also in cross-border situations, the repair measures are instead aimed at denying certain fiscal unity benefits in domestic situations to remove the unequal treatment. The repair measures announced will be given retro-active effect to October 25, 2017. These measures will require disregarding the existence of the Dutch fiscal unity for the application of specific rules (e.g. the Dutch anti-base erosion rules, Dutch excessive participation debt rules, Dutch participation exemption rules, Dutch change of control rules). Also, further repair measures may follow.
A legislative proposal for implementing these (retro-active) changes is expected to be published during the second quarter of 2018. The Dutch State Secretary of Finance has also announced that in the near future these repair measures will be followed by a new group taxation regime (which will likely no longer involve a full consolidation regime).
Any clients with a Dutch fiscal unity are highly recommended to review the potential impact of these developments on their Dutch corporate income tax position.