Following a CJEU ruling that the Dutch fiscal unity regime breached European law, Dutch law will be amended so that a fiscal unity can be created by two Dutch sister companies with a common non-Dutch parent. Under the new rules, more entities will be eligible to form a fiscal unity.
Fiscal unity advantages and requirements
The Dutch fiscal unity regime offers various tax benefits such as the compensation of profits and losses of fiscal unity members. Further, due to the fiscal consolidation, intercompany transactions between fiscal unity members are eliminated and therefore the realisation of income and capital gains can be avoided or deferred.
Companies that want to form a fiscal unity must file a request. The Dutch tax authorities grant a fiscal unity ruling if various requirements are satisfied (e.g., 95 percent or more ownership, same functional currency and same fiscal year). Under the current legislation, one of the key requirements to form a fiscal unity is that the fiscal unity parent company must own directly or indirectly at least 95 percent of the shares in the issued and paid up capital of the Dutch tax resident fiscal unity subsidiary. Further, each intermediate entity must also be included in that same fiscal unity, while all companies to be included in the fiscal unity must either be a tax resident of the Netherlands or a Dutch permanent establishment of a foreign entity. As a consequence, the current legislation does not allow Dutch tax residents to form a fiscal unity if their joint parent or if the intermediate company is not a Dutch tax resident. This was successfully challenged under the European freedom of establishment principle.
To make the fiscal unity legislation compliant with EU law, the Ministry has announced amendments to the Dutch fiscal unity legislation. It is anticipated that a legislative proposal will be submitted in the first half of 2015. Under the new legislation, it will be possible for Dutch tax resident companies to form a fiscal unity also if the joint parent or if the intermediate company is not a Dutch tax resident, but a tax resident of another EEA Member State, provided that such joint parent or intermediate company is only a tax resident of that EEA Member State and that its profits are subject to tax in that EEA Member State. Moreover, the standard conditions for forming a fiscal unity should be met.
Groups should review the ownership structure of Dutch entities in order to determine whether the new rules allow for a fiscal unity between entities that could previously not be combined. The fiscal unity request can have retroactive effect up to three months. Accordingly, in order to combine companies in a Dutch fiscal unity effective as of the beginning of calendar year 2015, a request should be filed prior to 1 April 2015.
Examples of fiscal unities that can now be formed are depicted in the following (simplified) diagrams.
Click here to view diagram.
Pursuant to the decree, EEA tax resident entities that are not subject to tax, e.g., because of their tax transparency under local law (while considered opaque from a Dutch perspective), are not eligible for this broadened fiscal unity regime. This may be too strict an interpretation of the Court's decision. Furthermore, it is not possible to form a fiscal unity if the joint parent company or one of the companies in the chain is a non EEA tax resident entity, even if that entity is a resident of a state that has concluded a tax treaty with the Netherlands which includes a non-discrimination clause. A case is pending in Dutch court with respect to this non-EEA matter.