On 23 April 2019, the Upper House (Eerste Kamer) of the Dutch Parliament approved the pending legislative proposal to change the Dutch corporate income tax consolidation regime (fiscal unity), the so-called repair measures. Due to this approval, the legislative process is finalised and the repair measures will be implemented in Dutch law with retroactive effect to 1 January 2018 after the bill has been published in the Government Gazette. Based on these measures, several provisions in the Dutch corporate income tax act (CITA) and the Dutch dividend withholding tax act (WHTA) must be applied as if the Dutch fiscal unity regime does not exist. The measures can have a severe impact on the tax position of taxpayers that currently apply the Dutch fiscal unity regime.
Through the introduction of the repair measures, the Netherlands aim to bring the Dutch fiscal unity regime in line with EU law following the judgement of the Court of Justice of the European Union (CJEU) of 22 February 2018. In that case, the CJEU ruled that the so-called “per-element” approach, as introduced in the CJEU Groupe Steria case, also applies to the Dutch fiscal unity regime (see our Tax Flash of 22 February 2018). On 19 October 2018, the Dutch Supreme Court confirmed the judgement of the CJEU (see our Tax Flash of 19 October 2018).
Content and impact
Based on the repair measures, the following provisions must be applied on a stand-alone basis (deconsolidated), as if the Dutch fiscal unity regime does not exist:
- The anti-base erosion rules (article 10a CITA), possibly leading to non-deductible interest expenses for taxpayers with related party debt;
- The Dutch participation exemption rules for low-taxed portfolio investment subsidiaries (article 13, paragraph 9 to 15 CITA) and the anti-hybrid rule in the Dutch participation exemption (article 13, paragraph 17 CITA), possibly disallowing the participation exemption to taxpayers;
- The revaluation provision for low-taxed portfolio investment subsidiaries (article 13a CITA), possibly leading to an annual (taxable) revaluation of low-taxed portfolio investment subsidiaries held by taxpayers;
- The interest deduction limitation against excessive participation interest (article 13l CITA), possibly leading to non-deductible interest expenses for taxpayers with participations;
- The provision regarding carry-forward losses and a change in ultimate interest in a taxpayer (article 20a CITA), possibly leading to the expiration of tax losses for taxpayers with carry forwards; and
- The redistribution facility for the dividend withholding tax (article 11, paragraph 4 WHTA), possibly leading to a higher Dutch dividend withholding tax burden for taxpayers applying this facility.
As a consequence of the repair measures, several benefits of the current Dutch fiscal unity regime are no longer available for taxpayers. This can have a severe impact on the tax position of taxpayers that currently apply the Dutch fiscal unity regime. The repair measures will enter into force with retroactive effect as of 1 January 2018, except for article 13a CITA (entry into effect on 1 January 2019).
- The retroactive effect of the repair measures until 1 January 2018 is maintained, although the Committee of Finance of the Upper House argued to limit the retroactive effect until 1 January 2019.
- Article 13l CITA remains part of the emergency measures, although the Committee of Finance of the Upper House argued otherwise. Article 13l CITA was abolished on 1 January 2019, meaning that the impact on this provision will be limited to one year.
- Because of the retroactive effect of the repair measures until 1 January 2018, the 2018 tax return form will be amended accordingly. Since the impact of the repair measures must be taken into account in the 2018 tax return, it is recommended to use this amended form (not applicable yet) to avoid questionnaires from the Dutch tax authorities.
Previous flashes in connection with the legislative process
- On 25 October 2017, the emergency repair measures were announced by the Dutch Ministry of Finance, after the Advocate-General of the CJEU ruled that the “per-element” approach should apply to the Dutch fiscal unity regime (see our Tax Flash of 25 October 2017).
- On 6 June 2018, the Dutch Ministry of Finance published the legislative proposal to amend the Dutch fiscal unity regime by implementing the emergency repair measures (see our Tax Flash of 6 June 2018).
- On 2 November 2018, the Dutch government published additional explanatory notes regarding the emergency repair measures, giving new insights on the legislative proposal (see our Tax Flash of 5 November 2018).
Future of the Dutch fiscal unity regime
Earlier, the Dutch State Secretary of Finance announced that he is exploring the alternatives to replace the Dutch fiscal unity regime by a new future-proof group regime. As this may take some time, such group regime is not expected to enter into force before 2023.