Dutch tax consolidation tax regime violates EU law, court rules

 by Jian-Cheng Ku &  Tim Mulder, DLA Piper, Amsterdam

The European Court of Justice (ECJ) in a February 22 decision ruled that the Dutch tax consolidation regime (fiscal unity) violates EU concepts of freedom of establishment and is thus contrary to EU law.

The ruling, which assessed the Dutch tax treatment of interest expense deduction/currency losses in the context of the Dutch fiscal unity regime, is in line with the opinion issued by AG Campos Sanchez-Bordona of the ECJ on October 25, 2017.

For more details on the AG’s opinion, reference is made to our previous article. 

As a result of the decision, the reparatory legislation that was announced by the Dutch State Secretary of Finance just after publication of the AG’s opinion has become effective retroactively as of October 25, 2017, at 11:00 a.m. (CET).

As a result, the following Dutch Corporate Income Tax Act 1969 (“CITA”) provisions are modified to be applied as if the consolidation regime was not applicable to the group of taxpayers: Articles 10a (anti-profit shifting), 13 paragraph 9 up to and including 15 and 17 (participation exemption), 13l (interest deduction limitation for excessive participation interest) and 20a (loss setoff in case of a change of shareholders).

For the Dividend Withholding Tax Act 1965 (“DWTA”), Article 11, paragraph 4 (rebate for the redistribution of dividends for taxpayers applying the consolidation regime) would be removed.

The State Secretary of Finance has announced that a new group regime would be introduced to replace the reparatory legislation. This new group regime should be EU-challenge proof and Dutch tax practitioners and businesses have been invited to discuss with the Ministry of Finance the content of this new group regime.

One of the alternatives that has been proposed by Dutch tax practitioners is the introduction of a group regime that applies to foreign entities as well.

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Jian-Cheng Ku

Partner at DLA Piper Nederland N.V.

Jian-Cheng Ku advises on international tax law and transfer pricing with a particular focus on international tax planning, M&A and private equity transactions, corporate reorganisations, and planning and design of transfer pricing policies.

Latest posts by Jian-Cheng Ku (see all)

• Dutch committee presents report on conduit companies and associated tax policy options - December 1, 2021
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• Netherlands issues policy decree clarifying hybrid mismatch tax measures - October 25, 2021
• Dutch 2022 budget plan includes tax proposals on transfer pricing, hybrids - September 27, 2021
• Netherlands legislative proposal tackles transfer pricing mismatches - March 24, 2021

Jian-Cheng Ku
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Tim Mulder

Associate Tax Adviser at DLA Piper Nederland N.V.

Tim Mulder advises on Dutch and international tax aspects relating to international tax planning, M&A transactions, corporate restructurings, private equity and investment fund transactions.

Latest posts by Tim Mulder (see all)

• Netherlands legislative proposal tackles transfer pricing mismatches - March 24, 2021
• The 2021 Dutch tax plan: key takeaways for multinational enterprises - September 28, 2020
• First Look: Dutch Tax Plan 2021 released - September 15, 2020
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• EU court assesses legality of Netherlands’ denial of German UCITS’s dividend withholding tax refund - February 11, 2020