The European Court of Justice (ECJ), on June 12, ruled in SCA Group Holding BV and other joined cases that the Netherlands may not deny single entity tax treatment to a resident parent company and its indirectly held Dutch subsidiary (sub-subsidiary) in cases where the sub-subsidiary’s parent is a not a Dutch resident or is without a permanent establishment there. Dutch law permits single entity treatment when a sub-subsidiary’s parent is a Dutch resident, so the law violates freedom of establishment principles, the ECJ said.
The ECJ also ruled that the Netherlands may not deny single entity treatment for resident sister companies in cases where the common parent is a not a Dutch resident or is without a permanent establishment there. As Dutch law permits single entity treatment when the common parent is a Dutch resident in those cases, freedom establishment principles are violated, the ECJ said.
The ECJ said that neither law is justified by overriding reasons in the public interest, such as the need to preserve fiscal coherence, including the prevention double use of losses. The Netherlands’ desire to prevent of tax avoidance is not a grounds to restrict freedom of establishment, the ECJ said. C‑39/13, C‑40/13 and C‑41/13
-For implications of the ECJ opinion on Spain’s rules governing tax consolidation, see a June 17 report by EY
