In 2003, X Holding BV applied for corporate income tax group treatment for itself and its Belgian subsidiary, F NV. The application was refused because F NV was established outside the Netherlands and had no permanent establishment there. The Supreme Court asked the European Court of Justice (ECJ) to decide whether an election for tax grouping could lawfully be restricted to companies that pay Dutch corporation tax on their profits.

The case is complex because the Dutch system of fiscal unity treats member companies as a single entity for a wide range of tax purposes, attributing all assets and activities of the subsidiaries to the parent, including profits and losses, and ignoring intra-group transactions and contractual relationships.

The ECJ has determined that capital gains exit charges are lawful (see 'N' 7 December 2006, C-470/04). It is not yet clear to what extent 'fiscal unity' must apply to cross border transfers of assets. The question asked of the ECJ is a broad one. It will be interesting to see how widely or specifically the Advocate General casts his anticipated opinion.