Netherlands proposes temporary changes to tax consolidation regime to comply with EU law

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

The Netherlands Ministry of Finance on June 6 published a legislative proposal that contains emergency measures to bring the Dutch tax consolidation regime in line with EU law. It was also announced that a new group regime will be introduced to replace the reparatory legislation.

In its February 22 decision, the Court of Justice of the European Union (CJEU) determined that the Dutch tax consolidation regime violates EU concepts of freedom of establishment. The court said that a per-element approach, as adopted by the CJEU in the Groupe Steria (Case C-386/14), should be applied to the Dutch fiscal consolidation regime because, to do otherwise, would lead to different treatment of taxpayers that have a resident subsidiary as opposed to Dutch taxpayers that have a non-resident subsidiary.

Under the government’s new proposal, certain tax rules would be applied ignoring the existence of a Dutch tax consolidation regime. Most provisions are intended to apply retroactively as from 25 October 2017.

Interest deduction limits

 The interest deduction limitation rules are deconsolidated under the new legislation. The anti-base erosion rule for related party financing (article 10a CITA), noted that a “grandfathering” rule would apply for purposes of these rules but only if the overall interest expense of the fiscal unity did not exceed EUR 100,000 during a 12-month period and the tainted transaction already existed on October 25, 2017.

 The excessive participation debt rules (article 13l CITA) are also deconsolidated.

Participation exemption rules

The following elements of the Dutch participation exemption are deconsolidated: the 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); and the revaluation provision for low-taxed portfolio investment subsidiaries (article 13a CITA).

Specific loss relief rule, dividend withholding

 The provision regarding carry-forward losses and a change in ultimate interest in a taxpayer (article 20a CITA) is deconsolidated under the emergency measures.

The remittance reduction facility (article 11, paragraph 4 of DWTA) is also deconsolidated.

Timing

Since the proposed measures will have retroactive effect from October 25, 2017, at 11:00 a.m., the measures may already have an impact on the tax position of Dutch taxpayers that currently apply the Dutch tax consolidation regime.

Note that the proposed revaluation provision for low-taxed portfolio investment subsidiaries of article 13a CITA will be applicable as from January 1, 2019.

Future legislation

The Dutch Ministry of Finance aims to come up with a legislative proposal for a new group regime for Dutch tax purposes that is EU-challenge proof and to replace the emergency legislation. The Ministry has invited Dutch tax practitioners and businesses to discuss with him 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 both domestic and foreign entities.

Jian-Cheng Ku

Jian-Cheng Ku

Attorney at Law / Tax Advisor 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.

Jian-Cheng Ku
Tim Mulder

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.
Tim Mulder


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