Fiscal unity regime
A Dutch-resident parent company and its Dutch-resident subsidiaries (if the parent owns at least 95% of the shares) may, under certain conditions, file a tax return as one entity (fiscal unity). Group taxation is available for companies having their place of effective management in the Netherlands, both for Dutch tax and treaty purposes.
The main feature of the fiscal unity is that profits of one company can be offset against losses of another company forming part of that fiscal unity. Furthermore, inter-company transactions are eliminated.
A cross-border fiscal unity is not possible. In February 2010, the ECJ decided that the Dutch fiscal unity regime does not violate EU law (the freedom of establishment), insofar as it disallows a cross-border fiscal unity. However, the ECJ has not yet explicitly dealt with the effects of the fiscal unity regime, other than cross-border loss utilisation, such as the transfer of assets between group companies without immediate taxation and the use of ‘final losses’. The Dutch Supreme Court will possibly deal with those issues at a later stage.
It does follow from EU law that Dutch resident companies should not be denied a fiscal unity amongst them merely because of a non-resident parent or intermediary company if located within the EU/EEA. On 16 June 2014, the ECJ decided that the Dutch fiscal unity regime does violate EU law to the extent it denies a fiscal unity between a Dutch resident parent company and its Dutch resident subsidiaries because of a non-Dutch resident EU/EEA intermediary holding company and insofar as it disallows a fiscal unity between two Dutch resident 'sister' companies that are held by a non-Dutch EU/EEA parent company.
The CIT law therefore now explicitly allows a Dutch fiscal unity between Dutch entities that are linked via a non-Dutch resident EU/EEA intermediary holding company or via an EU/EEA parent company.
On 22 February 2018, the ECJ issued its judgement in the joined cases C-398/16 and C-399/16 on the consequences of EU law for the Dutch fiscal unity regime. It ruled the ‘per element approach’ applicable to the Dutch regime. In reaction to the ECJ’s decision, the Dutch Ministry of Finance will amend several provisions of the CITA and DWTA with retroactive effect to 25 October 2017, the date of the Advocate General (A-G) Campos Sanchéz-Bordona’s Opinion in those cases. Despite the presence of a Dutch fiscal unity, the amended provisions will apply as if there was no fiscal unity. The actual legislative proposal is expected in the course of 2018.
Transfer pricing rules
Based on a general transfer pricing provision in the CIT law, all transactions between related parties must be at arm’s length. Furthermore, a specific transfer pricing provision exists with respect to the transactions of an interest and royalty conduit company. Dutch companies are obligated to produce transfer pricing documentation describing the calculation of the transfer price and the comparability of the transfer price with third-party prices. If a transaction between related parties is not at arm’s length, the taxable income may be corrected by the tax authorities. Moreover, transactions that do not meet the arm’s-length test may constitute a contribution of informal capital or a hidden profit distribution.
On the basis of a decree of the State Secretary for Finance regarding transfer pricing, companies may request an advance tax ruling (ATR) and an advance pricing agreement (APA). An ATR may be requested on the classification of activities and an APA may be required on the classification of activities and the arm’s-length character of the transfer price.
Country-by-country (CbC) reporting
The Netherlands has implemented the OECD outcomes in the area of country-by-country (CbC) reporting. The documentation obligations include the requirement for eligible taxpayers to produce a CbC report, a master file, and a local file.
There are currently no thin capitalisation rules in the Netherlands.
Controlled foreign companies (CFCs)
Dutch tax law does not provide for specific legislation regarding CFCs. However, interests of 25% or more in a company of which the assets consist (nearly) exclusively of low-taxed portfolio investments should be annually valued, as an asset, at the fair market value. The participation exemption is not applicable to portfolio investment participations unless these participations are qualifying portfolio investment participations for the participation exemption. A portfolio investment participation can only qualify for the participation exemption if either the intention of holding the participation is not an investment intention or if the participation is, in itself, either subject to sufficient tax or if the participation holds sufficient qualifying assets. This rule prevents shareholders of low-taxed portfolio investment participations from benefitting from the Dutch participation exemption because dividends not qualifying under the participation exemption are taxable in full at the ordinary CIT rate. Double taxation is avoided by applying the tax credit method, unless the portfolio investment shareholding effectively is not subject to tax at all. For EU shareholdings, it is optional to credit the actual underlying tax.