In the past year, the Netherlands has introduced various changes in Dutch tax laws in light of various international tax developments. Consider the changes to the fiscal unity regime in the Netherlands following European case law, as well as the domestic anti-abuse legislation following the implementation of a general anti-abuse rule in the EU Parent / Subsidiary Directive.
Implications for companies based in the Netherlands
The changes in Dutch law in the context of the fiscal unity legislation and the anti-abuse legislation in both Article 17(3)(b) of the Dutch corporate income tax Act and Article 1(7) of the Dutch dividend withholding tax Act have direct implications for companies based in the Netherlands.
What the law says
On December 11, 2014, the Amsterdam Court of Appeal ruled that the Dutch fiscal unity regime for corporate income tax purposes violates higher ranking European Union law. Based hereon, the Dutch Ministry of Finance issued a new decree on December 16, 2014, announcing that it will no longer be required for Dutch tax resident companies wanting to form a fiscal unity to be owned by a joint Dutch tax resident parent. In addition, a fiscal unity will no longer require an uninterrupted chain of Dutch tax resident companies. Dutch tax resident companies may now form a fiscal unity, even if the joint parent or the intermediate company is a resident of the European Economic Area (which includes EU Member States, Iceland, Liechtenstein and Norway). The Ministry of Finance submitted a legislative proposal on October 16, 2015, which is mostly in line with the decree. The legislative proposal is now under discussion and new legislation is expected to enter into force on January 1, 2017.
On another development, certain amendments have been implemented to Dutch law, effective as from January 1, 2016, as a consequence of the amended EU Parent Subsidiary Directive. The amended EU Parent Subsidiary Directive requires EU Member States to implement an anti-mismatch rule with respect to the participation exemption, as well as a "de minimis" general anti-abuse rule ("GAAR"). The Netherlands has implemented an anti-mismatch rule with respect to a remuneration or payment that is deductible by a (EU or non EU) subsidiary. The Netherlands already had an anti-abuse rule with respect to profits distributed by a cooperative association, as well as with respect to certain income (capital gains, dividends and interest) earned by (EU and non EU) parent companies with an interest of 5% or more in a Dutch company. This rule has now been brought in line with the GAAR.
Actions to consider
According to the new fiscal unity legislation, it will no longer be required to have a joint Dutch tax resident parent or an uninterrupted chain of Dutch tax resident companies. However, the new legislation does not make it 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 such entity is a resident of a state that has concluded a tax treaty including a non-discrimintaion clause with the Netherlands. A case is pending in a Dutch court with respect to this non-EEA matter. Additionally, the new legislation still requires that in a purely domestic (Dutch) structure, all Dutch entities should be consolidated in the same fiscal unity. This is a reverse discrimination. In both situations described above, there is, in our view, a reasonable chance that the Supreme Court will expand the fiscal unity rules to allow such fiscal unities.
Furthermore, the potential opportunities following from the "Groupe Steria" case should be considered. In this case, the European Court of Justice (EU CoJ) concluded that a 95% exemption, in case of a foreign subsidiary, and a full exemption in case of a French fiscal unity situation contains a violation of EU law. In essence the EU CoJ uses a so called "per-element approach" in determining whether a limitation of certain tax advantages exists. In practice, this means that a specific tax advantage that is not available solely because of the non-eligibility to form a cross-border fiscal unity can now be assessed as to its compatibility with the freedom of establishment. The adverse tax consequences of certain articles in the Dutch corporate income tax act could be mitigated by forming a fiscal unity, and, thus, the fact that such fiscal unity is not possible may be considered incompatible with the freedom of establishment.
With respect to the anti-mismatch rule included in the participation exemption, there is an element of overkill in cross-border situations where the interest is effectively not deductible in the EU source state due to local anti-abuse rules or thin cap rules. Such double taxation should not arise in a purely domestic situation with a similar instrument. Therefore, one should consider challenging the taxation of income to the extent that payment effectively did not result in a deduction abroad.
The Netherlands has implemented a GAAR in its legislation. On the basis thereof, a Dutch cooperative association may need to withhold Dutch dividend tax on a profit distribution to a non-resident company, or a non-resident company may be subject to Dutch corporate income tax with respect to dividends and capital gains. In a purely domestic situation, such taxes would not normally be levied, regardless of the motive or the economic reality of the structure. Therefore, one should consider challenging the taxation of such
distribution of income in a cross-border situation.
The Dutch government will look more closely into the difference in treatment between a cooperative and a share capital company for the Dutch dividend withholding tax. It seems mainly meant to identify whether a cooperative is misused to avoid dividend withholding tax. Especially groups with cooperatives that act as pure holding companies should closely monitor these developments.