In this Tax Alert we will address the anxiously awaited ruling of the European Court of Justice ("ECJ") on the joined cases C-398/16 and C-399/16. This judgement deals with the question whether EU law obliges the Netherlands to let taxpayers cherry pick benefits from the fiscal unity regime. We also mention the announcement of the Dutch Ministry of Finance to improve the rules for obtaining tax rulings in the Netherlands.
1. Joined cases C-398/16 and C-399/16
Today the ECJ has published its ruling on the joined cases C-398/16 and C-399/16. In both cases the key question is to what extent the current Dutch corporate income tax ("CIT") fiscal unity regime is in breach of EU law (in particular the freedom of establishment). The ECJ decided that the effective non-application of the Dutch anti-base erosion rules in domestic CIT fiscal unity situations is in breach with the freedom of establishment (case C-398/16). The ECJ also ruled that the non-deductibility of foreign exchange results as part of the Dutch participation exemption regime is not in breach with the freedom of establishment (case C-399/16). The Dutch Ministry of Finance confirmed that in line with their letter of 25 October last, the Dutch CIT fiscal unity regime will be amended with retroactive effect to 25 October 2017, 11.00 hours. A legislative proposal has been announced for Q2 2018. The envisaged amendments may likely include limiting interest deduction also in domestic situations (including the anti-base erosion rules that were addressed in case C-398/16). This could have substantial negative effects for existing fiscal unities relying on interest deduction.
In light of the ECJ’s ruling it may for instance be beneficial to file an appeal against CIT assessments for pre- 25 October 2017 periods in which CIT fiscal unity benefits have not been granted or claimed for cross border situations. If the appeal is granted certain interest expenses for which deduction was denied may become fully deductible after all.
2. Dutch tax ruling practice to be centralized
In a letter of 18 February 2018 the Dutch State Secretary of Finance has announced that procedures for quality control in the Dutch ruling practice will be further improved. Rulings that involve international aspects are to be coordinated centrally (expectedly by the existing APA/ATR-team in Rotterdam). Local tax inspectors should then no longer be competent to issue rulings with international aspects without consulting with the central team. A committee of experts will be appointed to do further analysis as to the scope and content of the exact changes. The changes are expected to enter into force as per 1 January 2019. The new policy follows from an in-depth investigation by the Dutch Revenue into over 4,400 existing rulings to see whether these were in line with published guidelines. The new ruling policy is to strengthen the Dutch ruling practice and is part of the international trend to accommodate real economic activities and discourage substanceless structures.