As of 1 January 2022, the Netherlands eliminates double non-taxation through transfer pricing mismatches (for more details we refer to our annual tax update under “New legislation on eliminating double non-taxation through transfer pricing mismatches”). Among others, in case of transfers of assets and liabilities through contributions, distributions, mergers and demergers, the Dutch corporate income tax base for the transferee is at maximum (for assets) or at minimum (for liabilities) the value included in the transferor’s tax base (Article 8bd of the Dutch Corporate Income Tax Act (CITA). This led to uncertainty, especially in respect of contributions and distributions involving entities that are disregarded for US tax purposes, pension funds and other exempt entities.
The Decree clarifies that Article 8bd CITA does not apply in cases of contributions and distributions to a Dutch entity by entities subjectively exempt from a profit tax or established in a state where the entity is not subject to a profit tax, this under the condition that the fair market value is reflected in both (i) the related civil law documentation, and (ii) the annual accounts of the transferor and the Dutch taxpayer.
This clarification reduces many of these uncertainties, especially with regard to pension funds and other exempt entities. With regard to entities that are disregarded for US tax purposes, it is helpful as it clarifies the purpose and intent of Article 8bd CITA. Unfortunately, some uncertainties still remain, for example contributions or distributions to Dutch entities that are disregarded for US tax purposes. It could be considered to file a ruling request with the Dutch tax authorities to also obtain certainty for these situations.