On 15 December 2017, the Dutch Supreme Court ruled that two Dutch resident companies with a common Israeli corporate shareholder cannot form a sister fiscal unity based on the non-discrimination clause in the Dutch-Israeli tax treaty.

Pursuant to this non-discrimination clause, a Dutch resident company that is held by an Israeli corporate shareholder may not be subject to any taxation, or any requirement connected therewith, in the Netherlands, that is other or more burdensome compared to other similar Dutch companies.

In the case at hand, it was argued that it should be permitted to form a sister fiscal unity between the two Dutch resident companies, as it would be possible to form a fiscal unity in case the Israeli shareholder would have been a Dutch resident.

The Supreme Court denies the reasoning of the taxpayer. The Supreme Court argues that it is not possible to form a fiscal unity between the two Dutch resident companies in case the Israeli shareholder would have been a Dutch resident, without including the Dutch resident parent company. Hence, the denial of the sister fiscal unity in the underlying case is not in breach with the non-discrimination clause of the Dutch-Israeli tax treaty.

In the case at hand, the taxpayers requested to form a sister fiscal unity as per 1 January 2013. At that stage, it was not yet possible to form such a sister fiscal unity for Dutch corporate income tax purposes. Pursuant to a ruling of the European Court of Justice from 2014, the Dutch fiscal unity regime was extended, allowing the formation of a sister fiscal unity between Dutch companies in case of a common EU/EER parent company. Under this change in law, it is still not possible to form a fiscal unity between two Dutch companies in case the common shareholder is a Dutch resident parent company, without including that parent company. Although the Supreme Court does not elaborate on this question, it seems reasonable to conclude that the ruling of the Supreme Court also applies to the Dutch fiscal unity regime currently in force.