On 6 June 2018, the Dutch Ministry of Finance published a legislative proposal to change the Dutch tax consolidation regime. Based on the proposal, several provisions included in the Dutch corporate income tax act (CITA) and the Dutch dividend withholding tax act (WHTA) must be applied as if the Dutch tax consolidation regime does not apply. Most importantly, two interest deduction limitations, rules limiting the possibility of loss compensation following a shareholder change and rules limiting the application of the participation exemption are affected. The scope of these limitations will be broadened if they need to be applied as if there is no fiscal unity. These changes were found necessary to bring the consolidation regime in line with EU law and were already announced on 25 October 2017.
If approved by Dutch parliament, most proposed changes will enter into force with retroactive effect from 25 October 2017, 11:00 am.
On 25 October 2017, the Advocate-General (AG) of the Court of Justice of the European Union (CJEU) delivered his opinion in two court cases regarding the Dutch tax consolidation regime, in which he concluded that the so-called ‘per-element approach’ is applicable (see: Tax Flash). Following the opinion of the AG, so-called ‘emergency repair measures’ were announced by the Dutch State Secretary of Finance. In accordance with the opinion of the AG, the CJEU ruled on 22 February 2018 that the Dutch tax consolidation regime infringes the European freedom of establishment and that the Netherlands should apply the ‘per-element approach’ (see: Tax Flash). In response to the CJEU’s judgement, the Dutch State Secretary of Finance confirmed that the ‘emergency repair measures’ as earlier announced will be implemented in Dutch law.
Content of the legislative proposal
Based on the legislative proposal, the following provisions of the CITA and the WHTA must be applied on a stand-alone basis (deconsolidated), as if the Dutch tax consolidation regime does not apply:
- The anti-base erosion rules (article 10a CITA);
- The Dutch participation exemption for low-taxed portfolio investment subsidiaries (article 13 paragraphs 9 to 15 CITA);
- The anti-hybrid rule in the Dutch participation exemption (article 13 paragraph 17 CITA);
- The revaluation provision for low-taxed portfolio investment subsidiaries (article 13a CITA);
- The interest deduction limitation rule against excessive participation interest (article 13l CITA);
- The provision regarding carry-forward losses and a change in ultimate interest in a taxpayer (article 20a CITA); and
- The redistribution facility (article 11, paragraph 4 WHTA).
As a consequence of the emergency repair measures, several benefits of the current Dutch tax consolidation regime will no longer be available for taxpayers. This could have a severe impact on the tax position of taxpayers that currently apply the Dutch tax consolidation regime even with retroactive effect from 25 October 2017, 11:00 am.
The legislative proposal covers more legal provisions than included in the emergency repair measures that were announced on 25 October 2017. The revaluation provision for low-taxed portfolio investment subsidiaries of article 13a CITA has been added. The retroactive effect will therefore not apply to that provision. This change will apply as from 1 January 2019.
Replacement of the Dutch tax consolidation regime
In the explanatory notes to the proposal, the Ministry of Finance states that the Dutch tax consolidation regime will be replaced by a new group regime within a foreseeable period. Consequently, the emergency repair measures included in the legislative proposal will be temporarily implemented in Dutch law. It is expected that this new group regime will be implemented on 1 January 2023 at the earliest. At this stage, it is not yet clear what this new regime will entail.