The Dutch fiscal unity regime

The Dutch fiscal unity regime allows two or more Dutch resident companies within a group to elect to be treated as a single taxpayer for Dutch corporate income tax purposes, provided that certain criteria are met. The fiscal unity regime offers various tax benefits such as the compensation of profits and losses within the fiscal unity. Also, sales and services within the fiscal unity are disregarded for Dutch corporate income tax purposes.

One of the most important conditions for forming a fiscal unity requires that the Dutch resident parent company must own at least 95% of the shares in the issued and paid up share capital of the Dutch subsidiary and an intermediate subsidiary must also be included in that same fiscal unity. Because only Dutch resident companies can be part of a fiscal unity, this implies that the fiscal unity can not be formed if there is no uninterrupted chain of Dutchresident companies:

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The requirement for an uninterrupted chain of Dutch resident companies (including the situation of Dutch sister companies with a foreign parent company) was considered burdensome and has been subject of discussion for years now.

The cases before the European Court of Justice

The three cases pending before the European Court of Justice concern different group structures, but a common feature is that intermediate companies in each Dutch "chain" of companies - or the parent company of Dutch sister companies - were established in other EU member states (similar to situations 1 and 2).

In all three cases requests by the Dutch resident entities to form a fiscal unity were denied, because there was no uninterrupted chain of Dutch resident companies. By referring these cases jointly to the European Court of Justice, the Netherlands Court of Appeal is essentially seeking to ascertain whether Netherlands tax law - which in these cases precludes the formation of a fiscal unity - violates higher ranking EU law.

Opinion of Advocate General

The Advocate-General is responsible for collating evidence and representing the interest of the European Union in cases before the European Court of Justice through an official opinion. As the Court tends to follow these opinions, great value is attached to the views of the Advocate General in a case.

On February 27th, 2014, Advocate-General Kokott concluded in her opinion that in these cases the Dutch fiscal unity regime violates EU law, rejecting several EU member states' justifications for the restriction such as preventing the risk of double loss relief and the objective of maintaining a coherent tax system. More specifically, the Dutch fiscal unity regime violates EU law by:

1.   offering domestic parent companies the possibility of forming a fiscal unity with their domestic sub-subsidiaries only if the intermediate subsidiary is also established in the Netherlands (situation 1); and

2.   offering domestic subsidiaries ("sister companies") the possibility of forming a fiscal unity with each other only if their parent company is also established in the Netherlands (situation 2).

Perspective of the opinion of AG Kokott

Ever since the Papillon case of November 27th, 2008 (which addressed the French tax consolidation regime), the Dutch legislation on fiscal unities has been subject of discussion on its consistency with higher ranking EU law. Even the European Commission formally requested the Netherlands to amend its fiscal unity regime on June 16th, 2011, stating that the current Dutch legislation on fiscal unities violates EU law.

If the European Court of Justice follows Kokott's opinion, the Netherlands (and potentially other EU jurisdictions) may have to amend its (their) fiscal unity regime to allow a fiscal unity in situations that are similar to situation 1 and situation 2.