On 29 October 2018, the Dutch government published a preliminary proposal implementing rules on hybrid mismatches as required under the amended EU Anti-Tax Avoidance Directive (ATAD2). This proposal is published for consultation purposes and is open for consultation until 10 December 2018. The ATAD2 rules should be implemented by the Member States on 31 December 2019, albeit that the rule targeting reverse hybrid entities (see below) may be implemented later, but at the latest on 31 December 2021.
The proposal in essence contains three types of rules:
- Denial of deduction: deduction of payments by a Dutch corporate tax payer will be denied in case the payment is not regarded taxable income in the state of a recipient as a result of a hybrid mismatch or in case payments can be deducted twice as a result of such hybrid mismatch.
- Inclusion in income: it will be required to include in the taxable income of a Dutch corporate tax payer the payments to such tax payer, which would normally be exempt from Dutch corporate income tax or would not be recognized as income, but nevertheless can be deducted in the state of the payer due to a hybrid mismatch.
- Taxation of reverse hybrid entities: reverse hybrid entities (transparent for Dutch tax law purposes but opaque for tax purposes in the residency states of the participants in the entity) will be regarded as Dutch corporate tax payers in case they are incorporated, established or registered in the Netherlands.
Amongst others hybrid financial instruments, hybrid entities, hybrid permanent establishments and dual resident entities can constitute a hybrid mismatch. In principle only hybrid mismatches between related entities are covered by the proposal, unless there is a structured arrangement.
It is proposed to apply the first two types of rules as from 1 January 2020 and the rule on reverse hybrid entities as from 1 January 2022, both in accordance with ATAD2.
All structures in which a Dutch entity is directly or indirectly involved in a hybrid mismatch need to be reviewed.